Terra Lago Communtiy Association do Merit / FirstService Residential 43-100 Cook Street, Suite 103 Palm Desert CA 92211

BUDGET ENCLOSED

197-522

BRIAN DAVIES 43-277 SENTIERO Dr INDIO CA 92203

DATE May 29, 2013 TO: The Membership Terra Lago Community Association

FROM: The Board of Directors RE: 2013-2014 Budget Effective July I, 2013

Each year the association's volunteer Board of Directors performs a very careful review of the past year's expenses and income to best project the amount to collect from each member in the upcoming fiscal year. When reviewing the budget, the Board considers several factors such as: recurring contract costs, inflation, utility usage and rates, insurance and appropriate reserve contributions (savings) each month to pay for repair, restoration and/or replacement of common area components as needed. As a result of this review, the Board has determined that assessments can remain the same while meeting the association's financial needs in the upcoming fiscal year. The monthly assessment will continue to be $291.49 per month for the next fiscal year.
What is included in This Budget Packet?

State law and the association's governing documents require the Board of Directors to distribute the following documents annually to each member: A summary of the pro forma budget for the upcoming fiscal year Assessment and Reserve Funding Disclosure Summary Executive Summary pages of the reserve study 5-Year Reserve Projection Model 30-Year Reserve Cashflow Analysis Delinquency Policy Written Notice of Assessments, Foreclosure, and Payment Plans Alternative Dispute Resolution (ADR) procedure Internal Dispute Resolution (IDR) procedure Architectural Submittal and Appeal process Insurance Summary

About the Reserve Study

California law requires the association's Board of Directors to "cause to be conducted" a reserve study with an onsite inspection at least once every three years. Although the law does not require the Board to perform a reserve study in years two and three, the law does require an annual disclosure to be distributed to the membership in those years. To ensure that the association's major components are appropriately identified, the Board hires a professional reserve analyst for these services.* The "Executive Summary" in this packet will show whether or not a site inspection was completed this year as determined by the Board.

California law also requires the Board to make these disclosures about the association's reserve funds: 1) In the upcoming year, the association will fund reserves using the following sources: Type of Funding ~ II Regular Assessments Special Assessments Borrowing Use of Other Assets Deferral of Repairs [] Alternate Mechanisms

El

2) The association has a total of $2,058,297.75 in actual accumulated reserve funds as of April 30, 2013. The Board anticipates that the amount will increase to $2,103,821.75 by the end of the current fiscal year. According to the reserve analyst, the total replacement cost for all major components is $4,394,183.00. The current reserve fund amount represents 48% of the projected total replacement cost. Although this number usually seems low, the legislature requires the Board to disclose (in boldface type) how much it would cost the association to rebuild all of its major common area components if they were replaced all at once. 3) According to the reserve analyst, at the start of the upcoming fiscal year the association is anticipated to be 132% funded to the "ideal funding level". That number represents the amount the association is anticipated to have on hand to repair or replace major components when they are scheduled to be repaired or replaced. 4) The Board of Directors has determined to defer or not undertake repairs or replacement of the following major components with a remaining life of 30 years or less (as identified in the reserve study as having zero estimated remaining life):

Item #
n/a

Item Description

Reason for Deferral or Decision to Not Undertake Repairs/Replacement

Insurance Information
The association carries General Liability insurance in the amount of $11,000,000 which meets the minimum amount specified in California law to ensure that owners are only individually liable for their proportionate share of special or regular assessments levied to pay any judgments against the association which exceed the limits of the association's insurance. Additional disclosures about the association's insurance policies can be found within this packet, including the name(s) of the insurer(s), the types of insurance, the policy limits, and the amount of deductibles (if any).

Other Disclosures
The Board of Directors does not anticipate that any special assessment will be required during the upcoming fiscal year to repair, replace and/or restore any major components or to provide adequate reserves.

Copies of board meeting minutes are available upon request throughout the year. Minutes can be released to you thirty days following the meeting date and any charges involved for copying and postage for those minutes are the responsibility of the requesting owner. If the minutes are not approved by the Board within the 30-day period of the request, draft minutes will be provided to you. Please contact our community manager, Julie Reese at 760-834-2483 or via e-mail at jreese@meritpm.com should you have any questions or if you would like to have a copy of the complete pro forma operating budget provided to you at the association's expense or a copy of the complete reserve study plan. These documents are also available for review at 42-900 Logo Vista Blvd, Indio Co 92203 by appointment * The association's board of directors has relied on information, opinions, reports and statements presented to it by vendors, contractors, reserve study specialists, CPA's and/or other professionals and is relying upon this information, financial data and reports pursuant to the California Corporations Code in providing the association membership the information contained in this Assessment Reserve Funding Disclosure Summary. The information contained within the reserve study includes assumptions regarding future events based on information supplied to the association's board of directors from said professionals. Some assumptions inevitably will not materialize and unanticipated events and circumstances may occur subsequent to the date of this Disclosure Summary. Therefore, the actual replacement cost and remaining life may vary from the reserve study and the variation may be significant. Additionally, inflation and other economic events may impact the reserve study, particularly over a 30-year period of time which could impact the accuracy of the reserve study and the funds available to meet the association's obligation for repair and/or replacement of major components during the next 30 years. Furthermore, severe weather conditions, earthquakes, floods or other acts of God, the occurrence of vandalism and other events that are difficult to anticipate cannot be accounted for and are excluded when assessing life expectancy of the components. The reserve study only includes items that the Association has a clear and express responsibility to maintain pursuant to the association's CC&Rs.

TERRA LAGO COMMUNITY 2013-2014 Budget

Number of Units: 520 PER MONTH (rounded) PER YEAR (rounded)

PER UNIT

Income Member Assessment Other Income Total Income 291.49 20.58 312.08 151,576 10,704 162,280 1,818,912 128,448 1,947,360

Reserve Funding

49.66

25,824

309,888

Operating Expenses Utilities: Landscape Maintenance: Pool/Spa: Common Area: Administration: Lake Maintenance: Community Serices/Events: Extra Section 3: Total Operating Expenses Total Reserve Funding Total Operating & Reserves 26.97 30.75 3.32 44.73 75.98 9.81 68.91 1.94 262.42 49.66 312.08 14,025 15,991 1,725 23,260 39,511 5,100 35,833 1,011 136,456 25,824 162,280 168,300 191,892 20,700 279,120 474,132 61,200 429,996 12,132 1,637,472 309,888 1,947,360

The pro forma operating budget is available at the business office of the association. Copies will be provided to you upon request at the expense of the association.
TYPICAL OPERATING EXPENSE CATEGORIES GENERALLY INCLUDE: Utilities: electricity, gas, water Landscape Maintenance: contract maintenance service, replacement of plant material, supplies, sprinkler repair, etc. Common Area: handyman services, pest control, light maintenance, fencing repair, etc. Administration: annual audit, taxes, & licenses, legal service, insurance, management fees, delinquency monitoring, etc.

Copy of TLA Budget Workbook 2013-2014

EXECUTIVE SUMMARY
RESERVE ANALYSIS
TERRA LAGO COMMUNITY ASSOCIATION CURRENT REPLACEMENT COMPONENT COST BUILDING ELEMENTS ROOFING COMPONENTS; Tile Roofs Skylights Category Total PAVED SURFACES Streets - Seal Coat Streets - Asphalt Overlay Category Total FENCES & GATES WROUGHT IRON; Pool Fence Pedestrian Gates OTHER; Masonry Wall Repairs Trash Access Gates Retaining Walls ENTRY SYSTEM; Vehicle Entry Gates Pedestrian Gates Access System GATE OPERATORS; Swing Type Category Total PAINT STUCCO TRIM WROUGHT IRON; Fences & Gates OTHER PAINTING; Interior Surfaces Guard House Category Total LIGHTING LANDSCAPE LIGHTING; Street Lights Bollard Fixtures Exterior Fixtures Park Landscape Fixtures Parking Fixtures Pocket Park Fixtures Category Total JUNE 30, 2013 REMAINING LIFE USEFUL LIFE PROJECTED RESERVES 6/30/13 MONTHLY FUNDING REQUIREMENT IDEAL RESERVE

5115,600 3,875 $119,475

29 14

35 20

$26,081 1,531 $27,611

$257.25 13.92 271.17

$19,817 1,163 520,980

225,655 1,743,697 $1,969,352

1 24

4 30

130,233 616,464 $746,697

7,951.83 3,914.00 11,865.83

169,241 348,739 $517,980

27,720 1,875 31,779 3,100 3,612 46,000 3,300 5,140 27,000 $149,526

13 13 18 13 13 19 19 4 11

20 20 25 20 20 20 20 10 12

12,768 863 11,710 1,428 1,664 3,027 217 4,059 2,961 $38,698

95.83 6.50 92.92 10.75 12.50 188.50 13.50 22.50 182.08 625.08

9,702 656 8,898 1,085 1,264 2,300 165 3,084 2,250 529,404

50,000 38,600 3,802 26,913 775 $120,090

2 1 1 2 4

8 4 3 8 5

49,353 38,100 3,336 26,565 204 5117,558

27.00 41.67 38.83 14.50 11.92 133.92

37,500 28,950 ' " 2,535 20,185 155 589,325

68,750 17,850 27,750 13,600 56,100 3,000 $187,050

18 3 14 3 11 3

25 10 20 10 18 10

25,334 16,444 10,956 12,529 28,713 2,764 $96,740

201.00 39.08 100.00 29.75 207.50 6.58 583.91

19,250 12,495 8,325 9,520 21,817 2,100 $73,507

Page 1

EXECUTIVE SUMMARY
RESERVE ANALYSIS
TERRA LAGO COMMUNITY ASSOCIATION CURRENT REPLACEMENT COMPONENT COST LANDSCAPE GENERAL LANDSCAPE; Parkways Pocket Parks Recreation Arca Masonry Reserve Category Total IRRIGATION SYSTEM COMPONENTS; Pump System Category Total POOL/SPA COMPONENTS & EQUIPMENT; Main Pool - Plaster & Tile Main Pool - Gas Heaters Main Pool - Filters Spa - Plaster & Tile Spa - Gas Heater Spa - Filter Kiddie Pool - Plaster & Tile Kiddie Pool - Gas Heater Kiddie Pool - Filter Pumps & Motors RELATED ELEMENTS; Showers Trellis Deck Repairs Furnishings Handicap Lift Category Total RECREATION ROOMS CLUBHOUSE CONTENTS; HVAC Systems Appliances Cabinets & Counters Interior Furnishings Audio Equipment Televisions Flooring Carpet Rcstrooms Refurbish Water Heaters Exterior Furnishings Category Total FITNESS FACILITIES FITNESS CENTER; Climbers Machines Stationary Bikes Tread Mills Flooring 11,000 45,000 10,000 12,000 14,250 4 9 4 4 10 10 10 10 10 10 8,686 5,922 7,896 9,476 0 48.17 361.83 43.83 52.58 118.75 6,600 4,500 6,000 7,200 0 18,000 9,000 25,000 77,400 5,140 16,775 48,224 21,068 22,700 1,550 2,250 $247,107 6 8 24 9 4 2 24 1 9 12 14 30 15 10 8 30 5 15 7 8 11,845 5,076 6,580 40,745 4,059 16,557 12,693 22,181 11,950 1,749 2,222 $135,658 85.50 40.83 63.92 339.42 22.50 9.08 123.33 0.00 99.50 0.00 1.17 785.25 9,000 3,857 5,000 30,960 3,084 12,581 9,645 16,854 9,080 1,329 1,688 $103,078 22,700 8,400 3,050 6,200 4,125 1,135 10,000 4,200 1,150 3,390 5,600 49,686 46,000 15,500 5,000 $186,136 5 5 3 1 3 3 5 3 3 2 13 14 23 1 3 12 10 10 10 10 10 12 10 10 5 20 20 30 5 10 17,427 5,527 2,810 7,344 3,801 1,046 7,677 3,869 1,059 2,677 2,579 19,617 14,125 16,319 4,606 $110,485 87.92 47.92 6.67 0.00 9.00 2.50 38.75 9.17 2.50 29.75 19.33 179.00 115.50 0.00 10.92 558.93 13,242 4,200 2,135 5,580 2,888 795 5,833 2,940 805 2,034 1,960 14,906 10,733 12,400 3,500 $83,951 41,250 $41,250 8 15 25,334 $25,334 165.75 165.75 19,250 $19,250 68,000 31,000 15,500 146,000 $260,500 3 3 3 13 10 10 10 20 62,645 28,559 14,279 67,251 $172,734 148.75 67.83 33.92 504.83 755.33 47,600 21,700 10,850 51,100 $131,250 JUNE 30, 2073 REMAINING LIFE USEFUL LIFE PROJECTED RESERVES 6/30113 MONTHLY FUNDING REQUIREMENT IDEAL RESERVE

Page 2

EXECUTIVE SUMMARY
RESERVE ANALYSIS
TERRA LAGO COMMUNITY ASSOCIATION CURRENT REPLACEMENT COMPONENT COST TOT LOTS; Safety Pads Equipment OTHER; Pocket Park Furnishings Category Total AQUATIC RECREATION LAKE; Aeration System Dredging Fill Line Pump Motors Pump Unit Pump Unit Pumps Compressor Pumps Repairs & Maintenance Auto Fill SLIPS/DOCKS; Boat Launch Ramp Dock Surfaces Dock Sections Category Total ACCESS CONTROL GUARDHOUSE; Remodel Category Total OTHER SIGNS; Monument MAILBOXES; Individual COMMON AREA; Well Refurbishment Bridge - Vehicle Contingency (5%) Category Total 12,385 21,000 125,000 250,000 94,586 $502,971 23 3 5 18 1 30 10 10 25 1 3,803 19,346 82,254 92,125 59,482 $257,010 31.08 45.92 712.42 730.92 2,925.33 4,445.67 2,890 14,700 62,500 70,000 94,586 $244,676 JUNE 30, 2013 REMAINING LIFE USEFUL LIFE PROJECTED RESERVES 6/30/13 MONTHLY FUNDING REQUIREMENT IDEAL RESERVE

8,820 45,000 10,325 S156,395

3 13 8

10 20 15

8,125 20,728 6,341 $67,175

19.33 155.58 41.50 841.57

6,174 15,750 4,818 $51,042

16,500 205,000 72,000 1,545 5,365 7,220 9,300 20,400 65,000 30,000 5,160 8,316 1,025 $446,831

8 18 8 1 3 3 1 1 3 1 IS 18 18

15 25 15 5 10 10 5 8 5 25 25 25 25

10,134 75,542 44,220 1,627 4,943 6,651 9,792 23,492 34,218 37,903 1,902 3,064 378 $253,864

66.33 599.33 289.42 0.00 11.75 15.83 0.00 0.00 855.08 0.00 15.08 24.33 3.00 1,880.15

7,700 57,400 33,600 1,236 3,756 5,054 7,440 17,850 26,000 28,800 1,445 2,328 287 $192,896

7,500 $7,500

19

20

494 $494

30.75 30.75

375 $375

GRAND TOTALS:
Less Projected Available Reserves

$4,394,183

$2,050,057

$22,943.31

$1,557,714 2,050,057 ($492,343) 132% ($775.34)

Ideal Reserve Deficiency (Over Funding)* Percent Funded To Ideal Reserve Deficiency (Over Funding) Per Unit *A positive result indicates an Ideal Reserve Deficiency while a (negative balance) reflects an Over Funded Condition. NOTE: Monthly Funding Requirement is predicated on the Current Reserve Method of funding. NOTE: This schedule reflects summary data only, for supporting details and/or additional information please Revision I refer to the complete Reserve Study Report

Page 3

TERRA LAGO COMMUNITY ASSOCIATION

ASSESSMENT AND RESERVE FUNDING DISCLOSURE SUMMARY JUNE 30, 2013 ( ) The current regular assessment per ownership interest is $291.49 per month. Note: if assessments vary by size or type of unit please refer to the attached schedule on page 4. (2) Additional regular or special assessments that have already been scheduled to be imposed or charged, regardless of the purpose, if they have been approved by the board and/or members: Amount per Unit per Month NA

Date Assessment is Due NA

Purpose of the Assessment NA

Note: If assessments vary by the size or type of unit please refer to the attached schedule on page 4. (3) Based upon the most recent reserve study and other information available to the board of directors, will currently projected reserve account balances be sufficient at the end of each year to meet the association's obligation for repair and/or replacement of major components during the next 30 years? Yes No X

(4) If the answer to #3 is no, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years that have not yet been approved by the board or members? Approximate date assessment will be due: See note below * Amount per unit per month:

* The need for, the amount of, and the timing for additional assessments or other contributions to reserves are directly correlated to and expressly conditioned upon, actual and sometimes unforeseen events that will occur over the next 30 years, in conjunction with a variety of other factors that will. determine whether improvements can last their estimated useful lives and whether replacement costs have been accurately predicted. A Reserve Study is periodically prepared for the association as mandated and in compliance with California law to assist in the budgeting for a major repair, refurbishment and/or replacement of association owned improvements and major components that are expressly identified in the Reserve Study ("Major Components") that are properly maintained. While the Reserve Study cannot be used as a guaranty of any of its budgetary conclusions, it is used by the association as a tool to anticipate and estimate how Major Component reserves should be currently funded in an effort to mitigate the need to make additional assessments in the future. The Reserve Study relies on a variety of assumptions and predicates concerning each Major Component, to generate budgetary estimates, which estimates are based upon industry standards, manufacturer specifications, a program of scheduled maintenance and anticipated environmental conditions and other conditions affecting wear and tear. These estimates are generally accepted in the practice of formulating reserve studies, and include estimates of replacement value and life expectancies of the components as well as assumptions regarding future events.

PAGE 1 OF 3

TERRA LAGO
COMMUNITY ASSOCIATION ASSESSMENT AND RESERVE FUNDING DISCLOSURE SUMMARY
(CONTINUED)

As a result, any one or more of the statistical components that form the basis of assumptions that are used to project anticipated events and conditions can fail. Therefore the actual replacement cost, useful life and remaining life may vary from the Reserve Study and the variance may be significant. In addition it is impossible to conclude that any mathematically supported and financially prudent funding mechanism adopted by the board of directors and used to fund reserves can guarantee sufficient funds for each Major Component for the next 30 years. It is also impossible to provide a "best or reasonable estimate" of the adequacy of reserve funds or the likelihood and/or risk of, magnitude, or timing of additional assessments for the next 30 years due to the multitude of variables, assumptions and predicates as well as the sheer duration of time. Any such attempt would simply constitute a guess. Additionally, other factors may influence a board of directors in establishing assessments within the association, which may have little to do with the results of a Reserve Study. The Reserve Study relies upon numerous assumptions and predictions and expressly excludes a comprehensive analysis of factors and future events that are essential in determining the structural tolerances and actual useful life of a component. The Reserve Study findings can easily be invalidated by changes in any of the assumptions or the occurrence of any events typically excluded from the analysis, such as weather, environmental, seismic and geological impacts, quality of construction and installation, possible construction and/or other manufacturing defects or failures, acts of vandalism, the actual useful life and/or actual wear and tear of a component, the actual replacement cost of a component, economic and inflationary factors or the future availability of labor and materials at current or future price estimates. In addition, the Reserve Study does not include a comprehensive analysis or an engineering analysis of Major Components. For these reasons, the Reserve Study is not able to accurately predict or even reasonably estimate, what additional assessments or other contributions will be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years. However, presuming that the association does in fact fund its reserve accounts at the levels recommended in the Reserve Study, presuming that all of the assumptions and predicates of those items and components examined by the Reserve Study, as more fully identified and described in the Reserve Study, remain true and correct for the next 30 years, and presuming that those matters not included within the scope of the Reserve Study analysis, or that are deemed immaterial or are expressly excluded from the Reserve Study scope of analysis, never become material or relevant over the following 30 years, there is no reason to conclude that over the following 30 years the association will be required to seek additional assessments or other contributions. Members and prospective homeowner association members are referred to the Reserve Study and the Associations' final adopted budget for a more comprehensive analysis of the foregoing and the likelihood and/or risk that a future assessment can occur.

(5) All major components are included in the reserve study and are included in its calculations. (6) Based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5, the estimated amount required in the reserve fund at the end of the current fiscal year is $1,557,714, based in whole or in part on the last reserve study or update prepared by Foresight Financial Services, Inc. as of June 30, 2013, Revision 1. The projected reserve fund cash balance at the end of the current fiscal year is $2,050,057, resulting in reserves being 132% funded at this date. (7) Please refer to the "Projected Reserve Fund Balances" provided on the following page (page 3 of 3). NOTE: The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change. At the time this summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was 1.5% per year, and the assumed long-term inflation rate to be applied to major component repair and replacement costs was 3.0%
PAGE 2 OF 3

TERRA LAGO
COMMUNITY ASSOCIATION

ASSESSMENT AND RESERVE FUNDING DISCLOSURE SUMMARY

(CONTINUED)

PROJECTED RESERVE FUND BALANCES

APPROVED RESERVE FUNDING PLAN

Year Required Ideal Reserve * Projected Available Reserves Percent Funded To Ideal 2013 $1,557,714 $2,050,057 132% 2014 $1,513,411 $1,960,501 130% 2015 $1,756,039 $2,159,200 123% 2016 $1,819,891 $2,172,321 119% 2017 $2,141,662 $2,442,265 114% 2018 $2,037,675 $2,276,718 112%

PRIOR LEVEL OF FUNDING**

Year Required Ideal Reserve * Projected Available Reserves Percent Funded To Ideal
TERRA LAGO COMMUNITY ASSOCIATION

2013 $1,557,714 $2,050,057 132%

2014 $1,513,411 $1,960,727 130%

JUNE 30, 2013

2015 $1,756,039 $2,151,352 123%

2016 $1,819,891 $2,147,768 118%

2017 $2,141,662 $2,392,035 112%

2018 $2,037,675 $2,191,483 108%

REVISION I

* Estimated based on the method of calculation in paragraph (4) of subdivision (b) of Section 1365.2.5 of the Civil Code. ** Per Civil Code Section 1365.2.5, based only on assessments already approved and other known revenues prior to the adoption of the new budget and reserve funding plan. NO1E.: The association's board of directors has relied on information, opinions, reports and statements presented to it by vendors, contractors, reserve study specialists, CPAs and/or other professionals and is relying upon this information, financial data and reports pursuant to Corporations Code 7231 in providing the association membership the information contained in this Assessment And Reserve Funding Disclosure Summary. The information contained within the reserve study includes assumptions regarding future events based on information supplied to the association's board of directors from said professionals. Some assumptions inevitably will not materialize and unanticipated events and circumstances may occur subsequent to the date of this Disclosure Summary. Therefore, the actual replacement cost and remaining life may vary from the reserve study and the variation may be significant. Additionally, inflation and other economic events may impact the accuracy of the reserve study, particularly over a thirty year period of time which could impact the accuracy of the reserve study and the funds available to meet the association's obligation for repair and/or replacement of major components during the next thirty (30) years. Furthermore, the occurrence of vandalism, severe weather conditions, earthquakes, floods, or other acts of God cannot be accounted for and are excluded when assessing life expectancy of the components. The reserve study only includes items that the Association has a clear and express responsibility to maintain pursuant to the association's CC&R's. The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change. ?AGE 3 OF 3

TERRA LA GO
COMMUNITY ASSOCIATION

APPROVED RESERVE FUNDING PLAN

JUNE 30, 2013

PROJECTED ANNUAL APPROVED RESERVE SPECIAL FUNDING ASSESSMENT

YEAR

CHANGE IN RESERVE FUNDING

PROJECTED RESERVE FUND BALANCE

$275,544 275,320 283,580 292,087 300,850 309,875 319,171 328,746 338,609 348,767 359,230 370,007 381,107 392,540 404,317 416,446 428,940 441,808 455,062 468,714 482,775 497,259 512,176 527,542 543,368 559,669 576,459 593,753 611,565 629,912 648,810

$0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043

($224) 8,260 8,507 8,763 9,025 9,296 9,575 9,862 10,158 10,463 10,777 11,100 11,433 11,776 12,130 12,493 12,868 13,254 13,652 14,061 14,483 14,918 15,365 15,826 16,301 16,790 17,294 17,813 18,347 18,897

$1,960,501 2,159,200 2,172,321 2,442,265 2,276,718 2,541,755 2,888,674 2,983,349 2,799,141 3,034,200 3,246,210 3,656,827 2,942,650 3,187,839 3,426,947 3,809,705 3,759,025 2,972,509 3,285,827 3,778,008 3,721,248 4,239,033 3,818,933 396,811 75,555 279,935 871,888 1,337,029 761,441 1,342,438

3.0% Projected Annual Increase In Reserve Funding

3.0% Annual Inflation Rate

NOTE: This schedule reflects summary data only, for supporting details and/or additional information please refer to the complete Reserve Study Report which is available upon request.

PAGE 1 OF 1

PERCENT FUNDED PROJECTIONS

CURRENT RESERVE METHOD
Projected Ideal Reserve Projected Available Reserves Monthl) Ft n $22,.943.31 Ideal Reserve Deficiency (Over Funding)* !Percent Funded To Ideal 2013 $1,557,714 2,050,057 2014 $1,513,411 1,960,501 2015 $1,756,039 2,159,200 2016 $1,819,891 2,172,321 2017 $2,141,662 2,442,265 2018 $2,037,675 2,276,718

($492,343) 132%

($447,091) 130%

($403,161) 123%
S

($352,430) 119%

($300,602) 114%

($239,043) 112%

A vsitiv, result indicates an Ideal Reserve Deficiency while a (negative ba

ar Oyer Funded Condlion.

STRAIGHT LINE METHOD

Projected Ideal Reserve Projected Available Reserves $36,682.40 Ideal Reserve Deficiency (Over Funding)* Percent Funded To Ideal A pos e

2013 $1,557,714 2,050,057

2014 $1,513,411 2,126,195

2015 ''.:1,756,039 2,483,943

2016 $1,819,891 2,649,153

2017 $2,141,662 3,063,902

2018 $2,037,675 3,035,537

($492,343) ($612,784) ($727,903) ($829,263) ($922,239) ($997,862) 132% 140% r 141% an Over Funded 146% it 143% 149%

result indicates n Ideai Rervc Deficiency v41ile a (ri,:gatiyetia x

PRESENT LEVEL OF FUNDING

Projected Ideal Reserve !Projected Available Reserves Monthly Funding $22,962.00 Ideal Reserve Deficiency (Over Funding)* Percent Funded To Ideal i'(.11ates an Ideal Reserve Deficiency w..

2013 $1,557,714 2,050,057

2014 $1,513,411 1,960,727

2015 $1,756,039 2,151,352

2016 $1,819,891 2,147,768

2017 $2,141,662 2,392,035

2018 $2,037,675 2,191,483

($492,343) 132% -

($447,316) 130%

($395,312) 123%

($327,877) 118%

($250,372) 112%

($153,808) 108%

n OveF Fiind d

PROPOSED LEVEL OF FUNDING

Projected Ideal Reserve Projected Available Reserves iWimr/i/v Funditi., $22,943.3.l Ideal Reserve Deficiency (Over Funding)* Percent Funded To Ideal

2013 $1,557,714 2,050,057

2014 $1,513,411 1,960,501

2015 $1,756,039 2,159,200

2016 $1,819,891 2,172,321

2017 $2,141,662 2,442,265

2018 $2,037,675 2,276,718

1492,343) 132%

($447,091) 130%

($403,161) 123%

($352,430) 119%

($300,602) 114%

($239,043) 112%

A pojtiye result indicas an ith:qd Reserve Deficiency while a (negative balance) reflects an Over Funded Condition.
TERRA LAGO COMAIUNITY ASSOCIATION. JUNE 30, 2013

Page 4

30 YEAR CASH FLOW SUMMARY

PROJECTED RESERVE BALANCES

CURRENT RESERVE METHOD

$2,050,057 1,960,501 2,159,200 2,172,321 2,442,265 2,276,718 2,541,755 2,888,674 2,983,349 2,799,141 3,034,200 3,246,210 3,656,827 2,942,650 3,187,839 3,426,947 3,809,705 3,759,025 2,972,509 3,285,827 3,778,008 3,721,248 4,239,033 3,818,933 396,811 75,555 279,935 871,888 1,337,029 761,441 1,342,438

STRAIGHT LINE METHOD

$2,050,057 2,126,195 2,483,943 2,649,153 3,063,902 3,035,537 3,429,785 3,897,583 4,104,436 4,023,318 4,351,982 4,647,703 5,131,712 4,480,170 4,776,786 5,055,645 5,465,996 5,430,252 4,645,502 4,946,881 5,412,874 5,315,108 5,776,484 5,283,969 1,772,803 1,345,229 1,425,355 1,874,431 2,177,364 1,419,507 1,797,421

YEAR

PRESENT FUNDING LEVEL

$2,050,057 1,960,727 2,151,352 2,147,768 2,392,035 2,191,483 2,411,822 2,703,973 2,733,421 2,473,124 2,620,818 2,733,759 3,033,161 2,195,165 2,303,463 2,392,121 2,610,367 2,380,600 1,399,884 1,503,339 1,769,429 1,469,760 1,727,214 1,028,738 (2,682,182) (3,289,912) (3,388,216) (3,120,202) (3,002,072) (3,942,469) (3,745,204)

PROPOSED FUNDING LEVEL

$2,050,057 1,960,501 2,159,200 2,172,321 2,442,265 2,276,718 2,541,755 2,888,674 2,983,349 2,799,141 3,034,200 3,246,210 3,656,827 2,942,650 3,187,839 3,426,947 3,809,705 3,759,025 2,972,509 3,285,827 3,778,008 3,721,248 4,239,033 3,818,933 396,811 75,555 279,935 871,888 1,337,029 761,441 1,342,438

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038

2039
2040 2041 2042

2043

TERRA LAGO COMMUNITY ASSOCIATION

JUNE 30. 2013

REVISION 1

Page 6

EXHIBIT A ASSESSMENT COLLECTION AND FULL PAY POLICY FOR: ANNUAL ASSESSMENTS SPECIAL ASSESSMENTS CAPITAL IMPROVEMENT ASSESSMENTS SPECIAL BENEFIT ASSESSMENTS DUE DATES: All Annual Assessments shall be due and payable, in advance, in equal monthly 1. installments, on the first (15') day of each month. Special Assessments, Capital Improvement Assessments and Special Benefit Assessments shall be due and payable on the due date specified by the Board in the notice imposing the assessment or in the ballot presenting the special assessment to the members for approval. In no event shall a Special Assessment be due and payable earlier than thirty (30) days after it is imposed. 2. PAYMENT RECEIPTS / OVERNIGHT PAYMENT LOCATION: Owners can request a receipt from the Association which shall indicate the date of payment and the person who received it. Any request for a receipt of payment must be submitted directly to the Association's business address (separately from any actual payment). Overnight payment of assessments may be sent/delivered to the following address: TERRA LAGO COMMUNITY ASSOCIATION Cf0 Merit Property Management, Inc. 1 Polaris Way, Suite 100 Aliso Viejo, CA 92656 3. APPLICATION: Payments received on delinquent assessments shall be applied to the Owner's account as follows: payment shall be applied to the principal owed first. Payments on principal shall be applied to the Owner's account by the "balance forward payment" method, i.e., in reverse order so that the oldest arrearages of the principal are retired first. Only after the principal owed is paid in full shall such payments be applied to interest, late charges, collection expenses, administration fees, attorneys' fees, or any other amount due to the Association which result in continued delinquencies. 4. LATE CHARGE: All assessments shall be delinquent if not paid within 15 days after they become due and will result in the imposition of a late charge of ten percent (10%) of the delinquent assessment or ten dollars ($10.00), whichever is greater. Furthermore, the Association shall be entitled to recover any reasonable collections costs, including attorneys' fees, that the Association then incurs in its efforts to collect the delinquent sums. 5. INTEREST: If an assessment payment is not paid within thirty (30) days of its original due date, interest may be imposed on all sums due, including the delinquent assessment, collection costs, and late charges, at an annual percentage rate of twelve percent (12%). 6. SECONDARY ADDRESS: Upon receipt of a written request by an Owner identifying a secondary address for the purposes of assessment collection notices, the Association shall send additional copies of any collection notices required by this Collection Policy to the secondary address provided. The Owner's notice of a secondary address must be in writing and mailed to the Association in a manner that shall indicate that the Association has received it. The Association shall only send notices to the indicated secondary address at the point in time the Association receives the written request. PAY OR LIEN LETTER: If an assessment payment from the Owner is not paid within thirty (30) 7. days after its original due date (for example, if an Owner fails to pay an assessment which was due on June 1

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COLLECTION POLICY

and the failure to pay continues through July 1, then the June assessment would not have been paid within thirty days after its original due date), a notice of delinquency (Pay or Lien Letter) shall be sent to the Owner by regular first-class mail and certified mail, return receipt requested. The Pay or Lien Letter shall provide at least 30 days' written notice to a delinquent Owner prior to recording an Assessment Lien and further provide an itemized statement of the charges owed, including a breakdown of: (a) the principal amount owed; (b) any late charges with the method of calculation used to determine such charges; (c) any attorneys' fees incurred; and (d) a description of collection practices, including the right of the association to the reasonable costs of collection. A copy of the Association's collection policy shall be attached to the Pay or Lien Letter. 8. INTERNAL DISPUTE RESOLUTION PROCESS : The Association shall offer to meet and confer with a delinquent owner to resolve any dispute related to the total amount due from the delinquent Owner to the Association and/or the Association's Collection Policy ("Meet and Confer Offer"). The Association's Meet and Confer Offer shall either be placed within the Association's Pay or Lien Letter or in a separate written communication to the delinquent Owner. An Owner who wishes to accept the Meet and Confer Offer must do so by submitting his/her/its written request to facilitate the meet and confer with the Association, which written request must be received by the Association within twenty (20) days of the date of the Meet and Confer Offer. The Association shall designate a prompt date and time for the meet and confer, at a location that shall either be the Association's principal office or another convenient location as designated by the Association. The Association shall designate a Board officer, along with it's Community Association Manager to participate in the meet and confer with the delinquent Owner. Prior to recording a lien for delinquent assessments, the Association shall participate in any meet and confer so accepted by the delinquent Owner, provided, however, that the Owner's acceptance of the Association's Meet and Confer Offer is made within twenty (20) days of the date of the Meet and Confer Offer. 9. SHOW CAUSE HEARING: Additionally, a delinquent Owner may be given a written notice (either in the Pay or Lien Letter or in a separate written document, as determined by the Board of Directors) of a hearing before the Board of Directors, wherein the Owner shall be invited to show good cause why (a) the Owner's voting privileges; and/or (b) the Owner's privileges for use of the common area/recreational facilities; and/or (c) the Owner's bulk cable television and intemet privileges (hereinafter collectively "Membership Privileges") should not be suspended for non-payment of the delinquent assessment(s) ("Show Cause Hearing"). The notice and hearing procedures shall be in accordance with the following: Written notice shall be mailed to the Owner not less than ten (10) days prior to the date of a. such hearing by first class or certified mail at Owner's last known address as shown on the Association's records. The notice shall set forth the amount of delinquency owed by the Owner and the time, date and place on which the hearing shall be held; The Board of Directors shall provide an opportunity for the Owner to be heard, orally or in b. writing, at the Show Cause Hearing prior to making any determination on the suspension of any Membership Privileges; In the event good cause is not shown and the Owner's account has not been brought current, c. then the Board may suspend any of the Owner's Membership Privileges. Cable television and internet services shall be reinstated upon the Owner's account being brought current and upon payment to the Association of a reinstatement assessment in an amount equal to what the Association is charged by the cable/internet company to facilitate reinstatement of cable/internet service. The Board shall hold the hearing in Executive Session; provided, however, if the Board is requested by a Member to have his/her matter be

Pursuant to a 1994 California decision, Park Place Estates Homeowners Association, Inc. v. Naber (1994) 29 Cal.App. 4th 427, the appellate court held that homeowners have an independent obligation to pay monthly assessments and do not have a right to set off or withhold payments of assessments.
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COLLECT/ON POLICY

heard in an open Board meeting, then the matter must be heard in an open Board meeting, and not in Executive Session. d. After the Show Cause Hearing, the Board of Directors shall provide within fifteen (15) days written notice to the Owner of the suspension of any Membership Privileges. 10. ASSESSMENT LIEN:

a. If the delinquent Owner does not bring his/her account current within the deadline set forth in the Pay or Lien Letter, the Board of Directors shall approve the recordation of an assessment lien by the Association's collection attorney against the delinquent Owner's property. The Board's decision to record the assessment lien shall be by a majority vote of a quorum of the Board members at an open Board meeting. The Board's action should refer to the Lot/parcel/account number of the property that is delinquent, rather than the name of the owner. The Assessment Lien shall be recorded in the County Recorder's Office itemizing all sums that are then delinquent, including the delinquent assessment(s), then current monthly assessment amount which will also accrue and be a part of the lien, interest, late charges, collection costs and reasonable attorneys' fees. Recording this notice creates a lien, which is subject to foreclosure, against the delinquent Owner's property. b. At the same time, the Association shall advise the Association's collection agent/bank that it should accept no furthermonies from this delinquent Owner until the assessment lien has been paid in full. Owners shall not send any assessment payments to the Association once the matter has been turned over to the Attorney for collection; such payments shall only be accepted by the law firm. Any payments delivered to the collection agent shall be forwarded to the attorney's office; the attorney shall then release the lien if payment in full was made by the delinquent Owner. An additional fee for legal expenses shall be charged to the Owner at this stage (pursuant to Civil Code 1366.3(a)). 11. PRE-FORECLOSURE ACTIONS:

a. The Association shall make a written pre-foreclosure offer to meet and confer with the delinquent Owner, consistent with the process identified in paragraph 8 herein (except that the timeline for the delinquent Owner to accept a meet and confer would be thirty (30) days from the date of the Owner's receipt of this pre-foreclosure offer) or alternative dispute resolution consistent with Civil Code 1369.510, et. seq. ("IDPJADR Offer"). Owner shall have thirty (30) days from the date of the IDR/ADR Offer to decide whether or not Owner wishes to pursue dispute resolution or a particular type of alternative dispute resolution (except that binding arbitration is not available to any delinquent Owner if the Association intends to initiate a judicial foreclosure). Prior to initiating foreclosure, the Board of Directors must, in executive session, approve the b. decision to proceed with foreclosure by a majority vote of a quorum of the Board of Directors. The Board shall record the Board's executive session decision in the minutes of the next meeting of the Board open to the members by referencing the lot/parcel/account number of the property that is delinquent. The Board of Directors shall not proceed with any form of foreclosure unless and until the c. amount of delinquent assessments (exclusive of any accelerated assessments, late charges, fees, costs of collection, attorney's fees or interest) equals or exceeds One Thousand Eight Hundred Dollars ($1,800.00) or the assessments have been delinquent for more than twelve (12) months ("Threshold"). Once the Threshold has been met and all other requirements identified above have been completed, the Board may proceed with foreclosure of the assessment lien pursuant to the Association's governing documents and Civil Code 1367. The procedure used shall be a private foreclosure, pursuant to Civil Code 2924, et seq, and Civil Code 1367. The foreclosure action shall include:

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COLLECTION POLICY

i. A Notice of Default and Election to Sell shall be recorded at the County Recorder's Office and a ninety-day reinstatement period shall begin. ii. A Title Report shall be obtained from a title company at a cost of approximately $350.00 and this shall also be charged to the delinquent Owner. iii. stage. 12. If the Association determines that the property is over-encumbered, or otherwise makes a determination that a lawsuit is appropriate, the Association shall file a personal lawsuit against the delinquent Owner to recover all delinquent assessments owing to the Association. If a lawsuit is necessary to collect the delinquent assessments from the Owner, all expenses, costs and attorneys' fees in connection with said lawsuit, including but not limited to pre- and post- judgment costs for filing fees, personal service, witness fees, interest, execution of judgment and/or writ fees shall be recovered from the Owner defendant. 13. If the delinquency is still not cured ninety (90) days after the Notice of Default and Election to Sell was recorded, the attorney shall proceed to record and publish the Notice of Trustee's Sale. This Notice must also be published three (3) times during a three-week period and posted in a public place. At this final stage, there shall be additional publication costs, as well as attorneys' fees of $125.00. If a non-judicial foreclosure sale is completed by the Association against the delinquent Owner's property, the Owner shall have the right to redeem the property for a period of time up to and including ninety (90) days after the date of the Trustee's Sale. 14. When a delinquent Owner has paid in full all delinquent assessments and charges, the attorney shall prepare a Release of Lien which shall be recorded in the County Recorder's Office of Riverside County, California within 21 days of receipt of the sums necessary to satisfy the delinquent amount and mail a copy of the lien release to the Owner of the residential unit. 15. PAYMENT PLAN STANDARDS: standards: The Association hereby establishes the following payment plan Furthermore, an additional $300.00 attorneys' fees and costs shall be charged at this

a. Payment Within 60 Days: If an Owner can bring himself/herself/itself current within sixty (60) days, inclusive of assessments which accrue within the sixty (60) days of the payment plan, the Association will forbear filing an Assessment Lien and the Owner will not incur the Assessment Lien costs if the payment plan is strictly followed. The payment plan shall include an administrative cost. By agreeing to the 60 day payment plan, the Owner further agrees that if he/she/it fails to make any of the payments identified in the payment plan, the Association shall have the right to file an Assessment Lien without recommencing the prelien or Pay or Lien Notice process.

Payment Exceeding 60 Days: In light of the length of time of this payment plan, payment b. plans exceeding sixty (60) days shall require that the Association record its Assessment Lien to establish itself as a secured creditor. The payment plan shall also include an administrative cost. All costs related to the recordation of the Assessment Lien shall be part of this payment plan. The payment plan would require payment of all delinquent assessments amortized over the length of the payment plan, along with all assessments which will accrue during the payment plan. The Association shall further require that the Owner sign a Forbearance Agreement which identifies his/her/its obligations of repayment consistent with the payment plan and further provides that if there is a default under the payment plan, the Association can proceed with the collection process as particularly identified within the Forbearance Agreement. Payment plans under this paragraph 15.b should normally not exceed six (6) months.
REQUEST FOR PAYMENT PLAN: An Owner may submit a written request to the Association for 16. a payment plan consistent with either paragraph 15.a or 15.b above. An Owner can also submit a written request to meet with the Board to identify which payment plan the Owner chooses, as identified in
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COLLECTION POLICY

paragraph 15 above. The Board is required to meet with the Owner in executive session within 45 days of the postmark of the request for the meeting, if the request is mailed within fifteen days of the date of the postmark of the Pay or Lien Notice. If there is no regularly scheduled board meeting within the 45 day timeline, the Board has designated the Assessment Dispute Resolution Committee to meet with the Owner.

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COLLECTION POLICY

"NOTICE ASSESSMENTS AND FORECLOSURE This notice outlines some of the rights and responsibilities of owners of property in common interest developments and the associations that manage them. Please refer to the sections of the Civil Code indicated for further information. A portion of the information in this notice applies only to liens recorded on or after January 1, 2003. You may wish to consult a lawyer if you dispute an assessment. ASSESSMENTS AND FORECLOSURE Assessments become delinquent 15 days after they are due, unless the governing documents provide for a longer time. The failure to pay association assessments may result in the loss of an owner's property through foreclosure. Foreclosure may occur either as a result of a court action, known as judicial foreclosure or without court action, often referred to as nonjudicial foreclosure. For liens recorded on and after January 1, 2006, an association may not use judicial or nonjudicial foreclosure to enforce that lien if the amount of the delinquent assessments or dues, exclusive of any accelerated assessments, late charges, fees, attorney's fees, interest, and costs of collection, is less than one thousand eight hundred dollars ($1,800). For delinquent assessments or dues in excess of one thousand eight hundred dollars ($1,800) or more than 12 months delinquent, an association may use judicial or nonjudicial foreclosure subject to the conditions set forth in Section 1367.4 of the Civil Code. When using judicial or nonjudicial foreclosure, the association records a lien on the owner's property. The owner's property may be sold to satisfy the lien if the amounts secured by the lien are not paid. (Sections 1366, 1367.1, and 1367.4 of the Civil Code) In a judicial or nonjudicial foreclosure, the association may recover assessments, reasonable costs of collection, reasonable attorney's fees, late charges, and interest The association may not use nonjudicial foreclosure to collect fines or penalties, except for costs to repair common areas damaged by a member or a member's guests, if the governing documents provide for this. (Sections 1366 and 1367.1 of the Civil Code) The association must comply with the requirements of Section 1367.1 of the Civil Code when collecting delinquent assessments. If the association fails to follow these requirements, it may not record a lien on the owner's property until it has satisfied those requirements. Any additional costs that result from satisfying the requirements are the responsibility of the association. (Section 1367.1 of the Civil Code) At least 30 days prior to recording a lien on an owner's separate interest, the association must provide the owner of record with certain documents by certified mail, including a description of its collection and lien enforcement procedures and the method of calculating the amount It must also provide an itemized statement of the charges owed by the owner. An owner has a right to review the association's records to verify the debt. (Section 1367.1 of the Civil Code) If a lien is recorded against an owner's property in error, the person who recorded the lien is required to record a lien release within 21 days, and to provide an owner certain documents in this regard. (Section 1367.1 of the Civil Code) The collection practices of the association may be governed by state and federal laws regarding fair debt collection: Penalties can be imposed for debt collection practices that violate these laws. PAYMENTS When an owner makes a payment, he or she may request a receipt, and the association is required to provide it. On the receipt, the association must indicate the date of payment and the person who received it The association must inform owners of a mailing address

for overnight payments. (Section 1367.1 of the Civil Code) An owner may dispute an assessment debt by submitting a written request for dispute resolution to the association as set forth in Article 5 (commencing with Section 1368.810) of Chapter 4 of Title 6 of Division 2 of the Civil Code. In addition, an association may not initiate a foreclosure without participating in alternative dispute resolution with a neutral third party as set forth in Article 2 (commencing with Section 1369.510) of Chapter 7 of Title 6 of Division 2 of the Civil Code, if so requested by the owner. Binding arbitration shall not be available if the association intends to initiate a judicial foreclosure. An owner is not liable for charges, interest, and costs of collection, if it is established that the assessment was paid properly on time. (Section 1367.1 of the Civil Code) MEETINGS AND PAYMENT PLANS An owner of a separate interest that is not a timeshare may request the association to consider a payment plan to satisfy a delinquent assessment. The association must inform owners of the standards for payment plans, if any exist. (Section 1367.1 of the Civil Code) The board of directors must meet with an owner who makes a proper written request for a meeting to discuss a payment plan when the owner has received a notice of a delinquent assessment. These payment plans must conform with the payment plan standards of the association, if they exist (Section 1367.1 of the Civil Code)"

ALTERNATIVE DISPUTE RESOLUTION POLICY Civil Code 1369.510-1369.590; 1369.510. As used in this article: (a) "Alternative dispute resolution" means mediation, arbitration, conciliation, or other nonjudicial procedure that involves a neutral party in the decision making process. The form of alternative dispute resolution chosen pursuant to this article may be binding or nonbinding, with the voluntary consent of the parties. (b) "Enforcement action" means a civil action or proceeding, other than a cross-complaint, for any of the following purposes: (1) Enforcement of this title. (2) Enforcement of the Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code). (3) Enforcement of the governing documents of a common interest development. 1369.520. (a) An association or an owner or a member of a common interest development may not file an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution pursuant to this article. (b) This section applies only to an enforcement action that is solely for declaratory, injunctive, or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of five thousand dollars ($5,000). (c) This section does not apply to a small claims action. (d) Except as otherwise provided by law, this section does not apply to an assessment dispute. 1369.530. (a) Any party to a dispute may initiate the process required by Section 1369.520 by serving on all other parties to the dispute a Request for Resolution. The Request for Resolution shall include all of the following: (1) A brief description of the dispute between the parties. (2) A request for alternative dispute resolution. (3) A notice that the party receiving the Request for Resolution is required to respond within 30 days of receipt or the request will be deemed rejected. (4) If the party on whom the request is served is the owner of a separate interest, a copy of this article. (b) Service of the Request for Resolution shall be by personal delivery, first-class mail, express mail, facsimile transmission, or other means reasonably calculated to provide the party on whom the request is served actual notice of the request. (c) A party on whom a Request for Resolution is served has 30 days following service to accept or reject the request. If a party does not accept the request within that period, the request is deemed rejected by the party. 1369.540. (a) If the party on whom a Request for Resolution is served accepts the request, the parties shall complete the alternative dispute resolution within 90 days after the party initiating the request receives the acceptance, unless this period is extended by written stipulation signed by both parties. (b) Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code applies to any form of alternative dispute resolution initiated by a Request for Resolution under this article, other than arbitration. (c) The costs of the alternative dispute resolution shall be borne by the parties. 1369.550. If a Request for Resolution is served before the end of the applicable time limitation for commencing an enforcement action, the time limitation is tolled during the following periods: 44

(a) The period provided in Section 1369.530 for response to a Request for Resolution. (b) If the Request for Resolution is accepted, the period provided by Section 1369.540 for completion of alternative dispute resolution, including any extension of time stipulated to by the parties pursuant to Section 1369.540. 1369.560. (a) At the time of commencement of an enforcement action, the party commencing the action shall file with the initial pleading a certificate stating that one or more of the following conditions is satisfied: (1) Alternative dispute resolution has been completed in compliance with this article. (2) One of the other parties to the dispute did not accept the terms offered for alternative dispute resolution. (3) Preliminary or temporary injunctive relief is necessary. (b) Failure to file a certificate pursuant to subdivision (a) is grounds for a demurrer or a motion to strike unless the court finds that dismissal of the action for failure to comply with this article would result in substantial prejudice to one of the parties. 1369.570. (a) After an enforcement action is commenced, on written stipulation of the parties, the matter may be referred to alternative dispute resolution. The referred action is stayed. During the stay, the action is not subject to the rules implementing subdivision (c) of Section 68603 of the Government Code. (b) The costs of the alternative dispute resolution shall be borne by the parties. 1369.580. In an enforcement action in which fees and costs may be awarded pursuant to subdivision (c) of Section 1354, the court, in determining the amount of the award, may consider whether a party's refusal to participate in alternative dispute resolution before commencement of the action was reasonable. 1369.590. (a) An association shall annually provide its members a summary of the provisions of this article that specifically references this article. The summary shall include the following language: "Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 1369.520 of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law." (b) The summary shall be provided either at the time the pro forma budget required by Section 1365 is distributed or in the manner prescribed in Section 5016 of the Corporations Code. The summary shall include a description of the association's internal dispute resolution process, as required by Section 1363.850. Service of the Request for Resolution shall be by personal delivery, first-class mail, express mail, facsimile transmission, or other means reasonably calculated to provide the party on whom the request is served actual notice of the request. A member of the Association may not be charged a fee to participate in the IDR process.

45

INTERNAL DISPUTE RESOLUTION POLICY Pursuant to the requirements of California Civil Code 1363.820 and 1363.840, the Association provides you with this internal dispute resolution ("IDR") procedure. This Policy will apply to a dispute between the Association and a member involving their rights, duties, or liabilities under the Davis-Stirling Common Interest Development Act, Civil Code 1350, et seq.; the California Non-Profit Mutual Benefit Corporation Law, Corporations Code 7110, et seq.; or the Governing Documents of the Association. This Policy supplements the requirements for alternative dispute resolution as provided in Civil Code 1369.510, et seq. 1. 2. 3. 4. The party may request the other party to meet and confer in an effort to resolve the dispute. The request shall be in writing. A member of the Association may refuse a request to meet and confer. The Association may not refuse a request to meet and confer. The Association's Board of Directors shall designate a member of the Board to meet and confer. The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. A resolution of the dispute agreed to by the parties shall be memorialized in writing and signed by the parties, including the Board designee on behalf of the Association.

5.

An agreement reached under those sections binds the parties and is judicially enforceable if both of the following conditions are satisfied: 1. 2. The agreement is not in conflict with law or the governing documents of the Association. The agreement is either consistent with the authority granted by the Board of Directors to its designee or the agreement is ratified by the Board of Directors.

43

Terra Lago Quick Tips for a Plan Submittal

Rear yard landscape Owners must submit plans for Design Review Committee (DRC) review and approval within 4 months of the close of escrow. Meetings The Terra Lago DRC meets at often as necessary. The DRC will determine the date and time of the meeting. Where to submit plans Terra Lago Community Association c/o Merit Property Management LLC 42-900 Lago Vista Indio, CA 92203 Attn: Facility Administrator Plan submittals must include 1. Terra Lago property improvement form (Exhibit A). 2. Plan and specifications (3 copies). One copy will be returned to the owner. The Terra Lago will retain two copies. 3. Neighbor statement (Exhibit B), 1 copy. 4. Photographs (2 copies), where applicable. Photographs will not be returned to the owner. 5. Check made payable to Terra Lago in the amount of $75. All forms are included in this packet or can be obtained at Merit Property Management (at the above address). Important  Read the attached Design Guidelines carefully before submitting plans.  Do not assume that property improvements at the model sites will be acceptable to the Terra Lago DRC. Owners are required to obtain all necessary permits and approvals from the City of Indio,  which is located at 100 Civic Center Mall, Indio, CA 92201 (760) 342-6500 (current information as of 2/06).  The Terra Lago DRC does not require that an owner use a landscape architect or similar professional consultant in the preparation of property improvement plans. Please see the Design Review Coordinator, who is located at Merit Property Management (at the above address), for assistance.

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TERRA LAGO DESIGN GUIDELINES I. PURPOSE

The purpose of these Design Guidelines is to continue the physical character as established by the initial development of Terra Lago. The intent is to give specific design criteria to owners for subsequent improvements after the completion of original construction. The Design Guidelines are written to preserve a high quality of appearance, to ensure compatibility between improvements, and to enhance the overall value of Terra Lago. The Design Guidelines are intended to be used by owners and consultants in preparing drawings for design, landscape, and other improvements; and by the Design Review Committee (DRC) in reviewing these drawings for conformance with the stated objectives. The DRC reviews proposed improvements for aesthetic purposes only. It is the owner's responsibility to follow all applicable federal, state and local building codes. Building permits may be required by the City of Indio located at 100 Civic Center Mall, Indio, CA 92201, (760) 342-6500 (current information as of 2/06). H. APPLICATION PROCESS I PLAN SUBMITTAL PACKAGE

The owner reviews the Design Guidelines and prepares plans, elevations and cross-sections depicting the proposed new improvements. To expedite the approval of plans, they must include each of the items detailed in the following information. Plans that do not contain required details may be returned incomplete and will require that the owner resubmit the plan submittal package. There is no additional cost to resubmit the plan submittal package. Step 1: Improvement plans and details Applications are to include: Landscape 1. A plot plan that is drawn to scale. 1/8" = 1'0" on 24"x36" sheets is the preferred scale and size. Plans must be of adequate size to be completely legible. 2. Landscape plan and working drawings (if applicable) including the location, type, size and quantity of all plants proposed. A plant list alone is not sufficient. 3. Grading plans (if applicable) Show where the established drainage pattern may be altered by the proposed improvements. Show the location of the bottom of any slope and the top of any slope; drain inlets and drainlines if applicable. Show the proposed locations of any drain inlets, drainlines and outlets. 4. The nature, kind, shape, dimensions, materials, color, finish and location of proposed improvements must be illustrated on the plan. 5. A description of the materials to be used, including the proposed color scheme. Attach actual samples or literature if available. 6. A dimensioned hardscape plan showing new and existing paving, walls, fences, pool, patio covers, drainage, and construction details for all structures accurately described as to materials and complete dimensions. 7. Outdoor lighting plan. All outdoor lighting must be low voltage and/or utilize 60-watt maximum bulbs. All exterior light fixtures must be ornamental and submitted for review.

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Roof plan / Floor plan for room additions I. Show plan of all existing and new roofs, with pitches and overhangs noted. 2. New materials should match existing. If not, provide material board. 3. Indicate all walls, columns, openings, windows, doors and any condition or feature that will affect the exterior design of the residence. 4. Indicate exterior landscape or other details affected. 5. Floor plans (if applicable) which show the overall dimensions and area of the improvements, and which reflect the design concept. 6. Elevations of all sides affected by proposed addition/alteration; including materials, colors and dimensions. All drawings should clearly distinguish between what exists vs. what is proposed. 7. Provide photographs of existing structure (all sides affected by change). Other Information I . If proposed improvements require access over the common area or covered property for the purposes of transporting labor or materials, written permission for such access shall be required from the Terra Lago (Community Association). Any such requests must be filed with the DRC prior to the commencement of construction. 2. View obstructions: Each owner acknowledges that any construction or installation by Declarant, any Guest Builder, Community Association or any sub-association may impair the view of such owner and hereby consents to such impairment. Each owner acknowledges that there are no guaranteed views within the Terra I.ago, and no lot or condominium is assured the existence or unobstructed continuation of any particular view unless a Supplemental Declaration specifically provides otherwise. 3. No owner shall alter any landscaping, and/or otherwise change any common area, owned and maintained by the Community Association. 4. Color samples of all paint or stain are required to be submitted to the DRC when they deviate from the original color scheme assigned to the existing residence. 5. Any color changes must be compatible with the neighboring homes, and requires approval from the DRC. 6. The DRC may require an additional fee for complex improvements that require extensive review by the Community Association's design review consultant. The owner will be advised of the cost prior to the commencement of the review. 7. Additional information or documentation, which may be deemed necessary by the DRC in reviewing the request, will be requested from the owner in order to complete the design review process. 8. The DRC approval is based on the completeness and clarity of the drawings. Inadequate or unclear information may cause the DRC to deny the application or deem the application incomplete.
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9. Contractor signs are not allowed to be placed on any portion of a homeowner's lot or Community Association common area, with the exception of security or alarm notification signs.

Step 2: Fees and Forms Applications are to include: 1. The Community Association property improvement form (Exhibit A, both copies) must be signed and completed by owner. 2. 3 copies of all plans and specifications, (per Step 1). 3. Neighbor statement (Exhibit B), 1 copy. 4. Photographs (2 copies), where applicable. 5. A required $75 fee, payable to Terra Lago. This fee will cover the cost of review on initial standard improvements. 6. Completed application package to be submitted to the following address: Terra Lago Community Association do Merit Property Management LLC 42-900 Lago Vista Indio, CA 92203 Attn: Facility Administrator FORMS AND HOW TO USE Property Improvement Form: All application submittal packages must include a signed and completed property improvement form (Exhibit A). Neighbor Awareness Statement: It is the intent of the DRC that the owner's neighbors be notified of any improvements, which may impact the use and enjoyment of the neighbor's property. Neighbor approval or disapproval of a particular improvement shall only be advisory and shall not be binding in any way on the DRC's decision. Applicable Neighbors Adjacent neighbor: means all neighbors with adjoining property lines to the owner. means the three (3) neighbors most directly across the street. Facing neighbor: Impacted neighbor: means all neighbors in the immediate surrounding area, which would be affected by the construction of an improvement. Owner must show the drawings to applicable neighbors and request their signatures on the neighbor statement (Exhibit B). Signature of this form does not constitute neighbor approval of the improvements.

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Notice of Completion: Once an owner receives approval from the DRC and the appropriate permits have been obtained from the City of Indio, construction may commence. Upon completion of the approved improvement(s), a Community Association notice of completion (Exhibit C) must be forwarded to the Design Review Coordinator, who is located at Merit Property Management (at above address).

III.

ABOUT THE REVIEW PROCESS

The DRC meets on at least a monthly basis to review plans. The members of the DRC shall set the date and time of the meetings. The DRC will review each submittal package for completeness and consistency with the Design Guidelines. The DRC will approve or deny the submittal. Approval may be given with conditions. CC&R Article 3, Section 3.3.5 Any photos required by the DRC will not be returned to the owner.

IV.

AFTER THE REVIEW PROCESS

Construction must proceed consistent with the approved drawings. All deviations must be submitted for review and approval by the DRC prior to commencement of work. All work must be performed in a manner consistent with the construction standards of the residence, and with the design and appearance of the community. Within thirty (60) days after construction is completed, the owner is required to submit a notice of completion (Exhibit C) to the DRC.

V.

APPEAL PROCEDURE

No persons have the right to appeal an approved application, so long as the Declarant has the right to appoint and remove DRC members. CC&R Article 3, Section 3.10.

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TERRA LAGO HOMEOWNERS ASSOCIATION INSURANCE NOTIFICATION CIVIL CODE 1365 Effective January 1, 1997, the California Civil Code was amended to require that associations prepare and distribute summaries to the general membership of specific insurance policies carried. This summary of the association's policies of insurance provides only certain information, as required by Section 1365 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association's insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association's policies of insurance may not cover your property, including personal property or, real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage. There are several disclosures that the association is required to make to its members. For a list of those disclosures, please see California Civil Code 1363.005 at www.leginfo.ca.gov or you can request a list from your community manager. The information provided is only a summary of the identified insurance policies. The actual terms and conditions of the policies will control whether the Association has coverage for a particular claim, the limits of available insurance for the claim, and who is responsible to pay any deductible or retention. The Association's property manager and the Association's Board members are not able to provide you with individual advice or recommendations concerning your own insurance needs. If you have questions concerning your current insurance coverage or additional coverage that may be available to you as a member of a homeowners association, please contact your insurance agent.

Insurance Summary TERRA LAGO HOMEOWNERS ASSOCIATION Agent: LABARRE/OIESNEE Policy Type
D&0 FIDELITY LIABILITY PROPERTY UMBRELLA WORKERS COMP

Limits of Liability
$1,000,000 $2,500,000 $1,000,000 $4,681,000 $10,000,000 $1,000,000

Deductible
1000 10000 0 5000 0 0

Carrier
LIBERTY MUTUAL NOVA QBE QBE GREENWICH REPUBLIC INDEMNITY

Exp. Date
4/28/2014 4/28/2014 4/28/2014 4/28/2014 4/28/2014 4/28/2014

Thursday, May 02, 2013

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