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September 28, 2000
The Addressees Listed
on Annex A
Re: NovaStar Mortgage Funding Trust, Series 2000-2
Ladies and Gentlemen:
We have acted as special tax counsel to Residential Asset
Funding Corporation as to certain matters in connection with the issuance and
delivery of certain asset-backed certificates denominated NovaStar Home Equity
Loan Asset-Backed Certificates, Series 2000-2 Class A Certificates, Class M
Certificates, Class P Certificates, Class O Certificates and Residual
Certificates (collectively, the "Certificates") pursuant to a Pooling and
Servicing Agreement dated as of September 1, 2000 (the "Pooling and Servicing
Agreement") among First Union National Bank, a national banking association, as
certificate administrator (the "Certificate Administrator") and The Chase
Manhattan Bank, as trustee (the "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 September 9, 1999 and a
Prospectus Supplement dated September 28, 2000 (together the "Prospectus") with
respect to the Class A and Class M Certificates, (b) an executed copy of the
Pooling and Servicing Agreement and the exhibits attached thereto and (c) 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 Pooling and
Servicing Agreement.
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.
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
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appropriate, we are of the opinion that for federal income tax purposes:
1. Assuming that (a) each of the Lower-Tier REMIC and the
Upper-Tier REMIC created under the Pooling and Servicing Agreement
elect, as it has covenanted to do in the Pooling and Servicing
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 Pooling and Servicing
Agreement comply with the terms thereof, the each of the Lower-Tier
REMIC and the Upper-Tier REMIC will be treated as a REMIC.
2. Subject to the above, (a) the Class A-1 Certificates,
without the right to receive amounts from the Supplemental Interest
Account, (b) the Class A-IO Certificates, (c) the Class M-1
Certificates, without the right to receive amounts from the Supplemental
Interest Account, (d) the Class M-2 Certificates, without the right to
receive amounts from the Supplemental Interest Account, (e) the Class
M-3 Certificates, without the right to receive amounts from the
Supplemental Interest Account, (f) the Class P Certificates and (g) the
Class O Certificates will be treated as "regular interests" in the
Upper-Tier REMIC. The Class RU Certificates will be treated as the
"residual interest" in the Upper-Tier REMIC.
3. The Lower-Tier Regular Interests will be treated as the
"regular interests" and the Class RL Certificates will be treated as the
"residual interest" in the Lower-Tier REMIC.
4. The statements under the caption "Federal Income Tax
Consequences" in the Prospectus Supplement are accurate and complete in
all material respects.
5. As a consequence of the qualification of the Upper-Tier
REMIC as a REMIC, the Upper-Tier REMIC Regular Interests 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 Upper-Tier REMIC consist of
qualifying assets under such sections. In addition, as a consequence of
the qualification of the Upper-Tier REMIC as a REMIC, interest on the
Upper-Tier REMIC Regular Interests 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 Certificates are treated as "real
estate assets" under Section 856(c) of the Code.
6. While the proper federal income tax treatment of the right
to receive amounts from the Supplemental Interest Account is not clear,
special tax counsel believes that the right to receive amounts from the
Supplemental Interest Account should be treated as a notional principal
contract.
Our opinions contained herein are rendered only as of the date
hereof, and
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we undertake no obligation to update this letter or the opinions contained
herein after the date hereof.
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
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<S> <C>
First Union Securities, Inc. The Chase Manhattan Bank
301 South College Street, TW-06 450 West 33rd St.
Charlotte, North Carolina 28288-0610 15th Floor
New York, New York 10001
Standard & Poor's Ratings Services Moody's Investors Service, Inc.
25 Broadway 99 Church Street
New York, New York 10004 New York, New York 10007
NovaStar Financial Inc. NovaStar Mortgage Funding Corporation III
1901 West 47th Place, Suite 105 1901 West 47th Place, Suite 105
Westwood, Kansas 66205 Westwood, Kansas 66205
NovaStar Capital, Inc.
1901 West 47th Place, Suite 105
Westwood, Kansas 66205
NovaStar Mortgage Inc.
1901 West 47th Place, Suite 105
Westwood, Kansas 66205
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