SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 30, 1998
(Date of earliest event reported)
NOVASTAR MORTGAGE FUNDING CORPORATION (as depositor under the
Trust Agreement, dated as of April 1, 1998, and pursuant to which
an Indenture was entered into, providing for, inter alia, the
issuance of NovaStar Mortgage Funding Trust, Series 1998-1 Home-
Equity Loan Asset-Backed Bonds)
NovaStar Mortgage Funding Corporation
(Exact name of registrant as specified in its charter)
Delaware 333-44099 48-1195807
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)
1901 West 47th Street
Suite 105
Westwood, Kansas 66205
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:(913) 514-3500
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits:
8.1 Opinion of Stinson, Mag & Fizzell, P.C. with
respect to certain tax matters.
23.1. Consent of Coopers & Lybrand L.L.P.,
independent auditors of the Certificate Insurer with respect
to NovaStar Mortgage Funding Trust, Series 1998-1Home Equity
Loan Asset-Backed Bonds.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NOVASTAR MORTGAGE FUNDING
CORPORATION
By: /s/ David J. Lee
Name: David J. Lee
Title: Vice President
Dated: April 30, 1998
April 30, 1998
To the Addressees Listed
on the Attached Annex A
Re: NovaStar Mortgage Funding Trust, Series
1998-1; NovaStar Home Equity Loan Asset-
Backed Bonds, Series 1998-1 (Tax
Opinion)
Ladies and Gentlemen:
We have acted as counsel to NovaStar Financial, Inc., a
Maryland corporation (the "Seller"), NovaStar Mortgage, Inc., a
Virginia corporation (the "Servicer"), NovaStar Mortgage Funding
Corporation, a Delaware corporation (the "Company"), and NovaStar
Certificates Financing Corporation, a Delaware corporation
("NCFC"; the Seller, the Servicer, the Company and NCFC are
sometimes referred to collectively herein as the "NovaStar
Entities"), in regard to (i) the sale by the Seller of certain
subprime mortgage loans (the "Initial Mortgage Loans") to the
Company, pursuant to Section 2.1 of the Mortgage Loan Purchase
Agreement, dated as of April 1, 1998 (the "Purchase Agreement"),
between the Seller, the Company, the Issuer (as defined herein),
and the Indenture Trustee; (ii) the sale by the Company to
NovaStar Mortgage Funding Trust, Series 1998-1, a Delaware
business trust (the "Issuer"), pursuant to the Amended and
Restated Trust Agreement, dated as of April 1, 1998 (the "Trust
Agreement"), between the Company and Wilmington Trust Company, as
owner trustee (the "Owner Trustee"); (iii) the servicing of the
Initial Mortgage Loans by the Servicer pursuant to the Servicing
Agreement, dated as of April 1, 1998 (the "Servicing Agreement"),
among the Servicer, the Issuer and the Indenture Trustee (as
defined below); and (iv) the sale by the Company of the
Certificates to NCFC pursuant to the Certificates Sale Agreement,
dated as of April 30, 1998 (the "Certificates Sale Agreement").
The documents evidencing the Initial Mortgage Loans
will be held by First Union National Bank, as indenture trustee
(the "Indenture Trustee"). The Indenture Trustee will hold such
documents as an agent and bailee with notice of the security
interests granted in favor of the Bondholders, the Insurer, the
Issuer and the Company respectively. Pursuant to the Indenture,
<PAGE>
dated as of April 1, 1998 (the "Indenture"), between the Issuer
and the Indenture Trustee, the Issuer will issue the Home Equity
Loan Asset-Backed Bonds, Series 1998-1 (the "Bonds"). The Bonds
will be secured in part by the Initial Mortgage Loans. Pursuant
to the Trust Agreement, the Issuer will issue the Trust
Certificates, Series 1998-1 (the "Certificates"), which will
evidence ownership interests in the Issuer (the Bonds and the
Certificates, collectively, the "Securities").
The Issuer will enter into the Insurance Agreement,
dated as of April 1, 1998 (the "Insurance Agreement"), among the
Seller, the Servicer, the Company, the Issuer, the Indenture
Trustee and MBIA Insurance Corporation, as bond insurer (the
"Insurer") pursuant to which a bond insurance policy (the "Bond
Insurance Policy") will be issued in respect of the Bonds. The
Seller will also enter into an Indemnification Agreement, dated
April 30, 1998 (the "Indemnification Agreement"), among the
Seller, the Insurer and the Underwriter (as defined below).
The Company will sell the Bonds to Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter") pursuant
to the Underwriting Agreement, dated April 28, 1998 (the
"Underwriting Agreement"), among the Company and the Underwriter.
The Underwriter expects to sell the Bonds to investors on the
Closing Date, pursuant to the Prospectus, dated April 23, 1998
(the "Prospectus"), and the Prospectus Supplement, dated April
28, 1998 (the "Prospectus Supplement").
The Initial Mortgage Loans will be sold by the Seller
to the Company and the Company will sell the Initial Mortgage
Loans to the Issuer on April 30, 1998 (the "Closing Date"). The
consideration to be paid for the Initial Mortgage Loans by the
Company to the Seller will consist of the Purchase Price (as
defined in Section 2.1 of the Purchase Agreement), which includes
a portion of the cash proceeds from the sale of the Bonds and the
cash proceeds from the sale of the Certificates. The Company
will sell the Initial Mortgage Loans to the Issuer in exchange
for a portion of the cash proceeds from the sale of the Bonds and
receipt of the Certificates. The Bonds will be entitled to the
benefits of the Bond Insurance Policy.
On the Closing Date, a portion of the proceeds of the
sale of the Bonds equal to the Original Pre-Funded Amount will be
deposited into the Pre-Funding Account and a portion of the
proceeds of the Sale of the Bonds equal to the Interest Coverage
Amount will be deposited into the Interest Coverage Account,
which accounts will be created under the Indenture and held by
the Indenture Trustee, as security for the Bondholders, in
segregated trust accounts established in the name of the
Indenture Trustee. Moneys on deposit in the Pre-Funding Account
will be used to fund the acquisition by the Issuer of certain
subsequent mortgage loans (the "Subsequent Mortgage Loans") from
the Company and, to the extent not so used, will be distributed
to holders of the Bonds. Moneys on deposit in the Interest
Coverage Account will be used to make certain <PAGE> interest payments
on the Bonds during the Pre-Funding Period and, to the extent not
so used, will be deposited into the Payment Account under the
Indenture. The Pre-Funding Account and the Interest Coverage
Account moneys will not be used to support losses or
delinquencies on the Initial Mortgage Loans. Further, such
moneys will be obtained from the sale proceeds of the Bonds and
not from either the Seller or the Company.
The Purchase Agreement, the Trust Agreement, the
Indenture, the Servicing Agreement, the Certificates Sale
Agreement, the Insurance Agreement, the Indemnification Agreement
and the Underwriting Agreement are collectively referred to
herein as the "Agreements." Capitalized terms not defined herein
have the meanings assigned to them in Appendix A to the
Indenture, or, if not defined therein, then in the other
Agreements. This opinion is rendered pursuant to Section 5(b) of
the Underwriting Agreement.
In rendering this opinion letter, we have examined
execution copies of each of the Agreements, together with the
documents, instruments and agreements referenced in other
opinions we have delivered in connection with the Agreements. We
have also examined such other certificates, documents, materials
and other matters of law as we have deemed necessary in order to
give the opinions hereinafter set forth. As to certain issues of
fact material to the opinions expressed herein, we have, with
your consent, relied to the extent we deemed appropriate, upon
the representations in the Agreements, and the certifications of
officers of the Seller, the Servicer, NCFC, the Company, the
Issuer, the Owner Trustee, the Indenture Trustee, the Insurer and
public officials.
In rendering this opinion letter, we have examined
executed copies of each of the Agreements, together with the
Bonds and the Certificates. We have also examined such other
certificates, documents, materials and other matters of law as we
have deemed necessary in order to give the opinions hereinafter
set forth.
In making our examinations and rendering the opinions
herein expressed, we have made, with your permission, the
following assumptions:
(1) Each of the Agreements has been duly and properly
authorized, executed, acknowledged, delivered and accepted, and,
as may be required under applicable law, sealed and attested, by
each of the parties thereto. We have further assumed the
genuineness of all signatures on all documents.
(2) All corporate, partnership and other action
requisite for the execution, delivery and performance of each of
the Agreements by each of the parties thereto has been duly and
effectively taken.
<PAGE>
(3) Each of the parties to the Agreements (i) has all
necessary power and authority (corporate, partnership and
otherwise) to execute, enter into, deliver and perform the same;
(ii) is duly organized, validly existing and in good standing in
the jurisdiction of its formation; and (iii) has all necessary
licensing and qualifications needed in the jurisdiction of its
formation and in all the jurisdictions in which it does business.
(4) The execution, delivery and performance of
each of the Agreements by each of the parties thereto do not and
will not contravene or conflict with any provision of the charter
documents or bylaws of any of such parties or any partnership
agreement or other agreement or instrument which is binding upon
any of such parties or their respective properties.
(5) Each of the Agreements is the valid and binding
obligation of each of the parties thereto and is enforceable
against each such party in accordance with its terms.
(6) Any and all certifications made to us by public
officials and any and all certifications made to us by the
Seller, NCFC, the Servicer, the Company, the Issuer, the Owner
Trustee, the Indenture Trustee, and the Bond Insurer concerning
factual matters are accurate and complete.
(7) (i) All documents submitted to us as certified,
conformed, draft, photostatic or telefacsimilied copies conform
to the original documents, (ii) all such original documents and
all documents submitted to us as originals are authentic, (iii)
all unexecuted copies of documents submitted to us conform to the
original executed documents, and (iv) as to each of the
Agreements, in such executed copies all blank spaces have been or
shall be properly completed and all exhibits and schedules
referred to therein have been or shall be attached in their final
forms and none of the completions or attachments are or shall be
inconsistent with the forms which we have reviewed.
(8) The statements, recitals, representations and
warranties as to matters of fact set forth in the Agreements are
accurate and complete.
Based upon the foregoing and subject to the
qualifications and exceptions heretofore and hereinafter set
forth, we are of the opinion that:
1. Assuming compliance with the provisions of the
Agreements, for federal income tax purposes, the Bonds will be
treated as indebtedness and not as an ownership interest in the
Mortgage Loans or an equity interest in the Issuer or the
Company.
<PAGE>
2. Assuming compliance with the provisions of the
Agreements, for federal income tax purposes, the Issuer will not
be classified as (i) an association taxable as a corporation,
(ii) a "taxable mortgage pool," as defined in Section 7701(i) of
the Code, or (iii) as a "publicly traded partnership," as defined
in Treasury Regulations Section 1.7704-1.
The opinions and statements expressed herein are
subject to the following limitations and qualifications:
(a) The opinions expressed herein are based upon and
limited to federal law as set forth in the Internal Revenue Code
of 1986, as amended to date (the "Code"), the regulations
promulgated thereunder, the position of the Internal Revenue
Service set forth in the published revenue rulings, revenue
procedures and other announcements and court decisions as in
effect on the date hereof, any of which may be changed at any
time with retroactive effect. We undertake no obligation or
responsibility to update or supplement this opinion in response
to subsequent changes in the law or future events affecting the
transactions contemplated by the Agreements.
(b) We express no opinion on any laws other than
federal income tax laws. The opinions expressed herein are
limited to the federal income tax matters specifically addressed
above, and we have not addressed any other federal, state, local,
or foreign income, estate, gift, transfer, sales, use or other
tax consequences that may result from the transactions
contemplated by the Agreements. We do not express any opinion,
either implicitly or otherwise, on any issue not expressly
addressed above.
This opinion is furnished by us as counsel to the
NovaStar Entities and shall not be relied upon by any party other
than the Addressees in connection with the transactions
contemplated by the Agreements. This opinion is not to be
otherwise used, circulated, quoted or referred to in connection
with any other transaction, nor filed with any governmental
agency or other person, without our prior written consent. We
hereby consent to the filing of this opinion with the Securities
and Exchange Commission in connection with the filing of the
Prospectus Supplement, and to the references to "Stinson, Mag &
Fizzell, P.C." under the captions "Federal Income Tax
Consequences" in the Prospectus and in the Prospectus Supplement.
Very truly yours,
STINSON, MAG & FIZZELL, P.C.
By /s/ Paul E. McLaughlin
Paul E. McLaughlin
<PAGE>
ANNEX A
1. Merrill Lynch, Pierce, Fenner & Smith Incorporated
250 Vesey Street
World Financial Center/North Tower
New York, NY 10281
2. MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
3. Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
4. Standard & Poor's
26 Broadway
New York, NY 10004-1064
5. Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890
6. First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, NC 28288-1179
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
Prospectus Supplement of NovaStar Home Equity Loan Asset-Backed
Bonds, Series 1998-1, of our report dated February 3, 1998,
on our audits of the consolidated financial statements of MBIA
Insurance Corporation and Subsidiaries as of December 31, 1997
and 1996 and for each of the three years in the period ended
December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
April 29, 1998
New York, New York
