Exhibit 8.1
January 29, 1999
The Addressees Listed
on Annex A
Re: NovaStar Mortgage Funding Trust, Series 1999-1
Ladies and Gentlemen:
We have acted as special tax counsel to NovaStar Mortgage, Inc. as
to certain matters in connection with the issuance and delivery of certain
asset-backed bonds denominated NovaStar Home Equity Loan Asset-Backed Bonds,
Series 1999-1 Class A Bonds, Class B Bonds and Class IO Bonds (collectively, the
"Bonds") pursuant to an indenture dated as of January 1, 1999 among NovaStar
Mortgage Funding Trust, Series 1999-1, a Delaware business trust, as issuer (the
"Issuer"), First Union National Bank, a national banking association, as bond
administrator (the "Bond Administrator") and The Chase Manhattan Bank, as
indenture trustee (the "Indenture Trustee"), and the Certificates pursuant to an
amended and restated trust agreement (which amends the trust agreement dated [ ]
between Residential Asset Funding Corporation, as depositor (the "Depositor")
and Wilmington Trust Company, a Delaware banking corporation, as owner trustee
(the "Owner Trustee")) dated as of January 1, 1999 (as amended from time to
time, the "Trust Agreement"), among NovaStar Mortgage Funding Corporation II as
the transferor (the "Transferor"), the Depositor and the Owner Trustee.
As special tax counsel, we have examined such documents as we have
deemed appropriate for the purposes of rendering the opinions set forth below
including the following: (a) a Prospectus dated November 10, 1998 and a
Prospectus Supplement dated January 27, 1999 (together the "Prospectus") with
respect to the Class A Bonds, (b) an executed copy of the Indenture and the
exhibits attached thereto, (c) an executed copy of the Trust Agreement and the
exhibits attached thereto, and (d) other documents and matters of fact and law
as we deem necessary for the purposes of the opinions expressed below. Terms
capitalized herein and not otherwise defined herein shall have their respective
meanings as set forth in the Indenture.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents.
To the Parties Listed on
the Attached Annex A;
January 29, 1999;
Page 2
Our analysis is based on the provisions of the Internal Revenue Code
of 1986, as amended, and the Treasury Regulations promulgated thereunder as in
effect on the date hereof and on existing judicial and administrative
interpretations thereof. These authorities are subject to change and to
differing interpretations, which could apply retroactively. The opinion of the
special tax counsel is not binding on the courts or the Internal Revenue Service
(the "IRS").
Based on the foregoing, and such investigations as we have deemed
appropriate, we are of the opinion that for federal income tax purposes:
1. Assuming that (a) the Issuer created under the Trust Agreement elects,
as it has covenanted to do in the Trust Agreement, to be treated as a
"real estate mortgage investment conduit" ("REMIC"), as such term is
defined in the Internal Revenue Code of 1986, as amended (the "Code")
and (b) the parties to the Trust Agreement and the Indenture comply
with the terms thereof, the Issuer will be treated as a REMIC. Subject
to the above, the Bonds issued pursuant to the Indenture will be
treated as "regular interests" in the REMIC and the Certificates issued
pursuant to the Trust Agreement will be treated as the sole "residual
interest" in the REMIC.
2. The statements under the caption "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus Supplement are accurate and complete in all material respects.
3. As a consequence of the qualification of the Issuer as a REMIC, the
Bonds will be treated as "regular . . . interest(s) in a REMIC" under
Section 7701(a)(19)(C) of the Code and "real estate assets" under
Section 856(c) of the Code in the same proportion that the assets of
the Issuer consist of qualifying assets under such sections. In
addition, as a consequence of the qualification of the Issuer as a
REMIC, interest on the Bonds will be treated as "interest on
obligations secured by mortgages on real property" under Section 856(c)
of the Code to the extent that the Bonds are treated as "real estate
assets" under Section 856(c) of the Code.
Our opinions contained herein are rendered only as of the date
hereof, and we undertake no obligation to update this letter or the opinions
contained herein after the date hereof.
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To the Parties Listed on
the Attached Annex A;
January 29, 1999;
Page 3
We express no opinion on any matter not discussed in this letter.
This opinion is rendered as of the Closing Date, for the sole benefit of each
addressee, and no other person or entity is entitled to rely hereon without our
prior written consent. Copies of this opinion letter may not be furnished to any
other person or entity, nor may any portion of this opinion letter be quoted,
circulated or referred to in any other document, without our prior written
consent.
Very truly yours,
/s/ Dewey Ballantine LLP
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ANNEX A
Wheat First Securities, Inc. Financial Security Assurance, Inc.
acting through 350 Park Avenue
First Union Capital Markets, a division of New York, New York 10022
Wheat First Securities, Inc.
301 South College Street, TW-06
Charlotte, North Carolina 28288-0610
Standard & Poor's Ratings Services The Chase Manhattan Bank
25 Broadway 450 West 33rd St.
New York, New York 10004 15th Floor
New York, New York 10001
NovaStar Financial Inc. Moody's Investors Service, Inc.
1901 West 47th Place, Suite 105 99 Church Street
Westwood, Kansas 66205 New York, New York 10007
NovaStar Capital, Inc. NovaStar Mortgage Funding Corporation II
1901 West 47th Place, Suite 105 1901 West 47th Place, Suite 105
Westwood, Kansas 66205 Westwood, Kansas 66205
NovaStar Mortgage Inc. NovaStar Mortgage Funding Trust 1999-1
1901 West 47th Place, Suite 105 c/o Wilmington Trust Company
Westwood, Kansas 66205 Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001