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                                                                  EXHIBIT 10.85


                        RIGHT OF FIRST REFUSAL AGREEMENT

         This Right of First Refusal Agreement (the "Agreement") is made as of
June 29, 1998, by and among City National Bank of West Virginia, a national
banking association, with its principal offices at 3601 MacCorkle Avenue,
Charleston, West Virginia ("City"), Sovereign Bancorp, Inc., a Pennsylvania
corporation, with its principal offices at 1130 Berkshire Boulevard, P.O. Box
12646, Reading, Pennsylvania 19612 ("Sovereign"), and Mego Mortgage Corporation
(the "Company"), a Delaware corporation, with its principal offices at 1000
Parkwood Circle, 5th Floor, Atlanta, Georgia.

         WHEREAS, the Company has entered into a Preferred Stock Purchase
Agreement dated as of June 9, 1998 with City (the "City Agreement");



                  WHEREAS, the Company has entered into a Preferred Stock
Purchase Agreement dated as of June 9, 1998 with Sovereign (the "Sovereign
Agreement"); and



                  WHEREAS, the City Agreement and the Sovereign Agreement both
require as a condition to closing the execution of a right of first refusal
agreement by and among the Company, City and Sovereign;



         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:


Section 1.                 Definitions.


         A.       "Acquisition Agreement" shall mean an agreement which provides
                  for: (i) a merger, consolidation or similar transaction
                  involving the Company or any of its subsidiaries (other than
                  transactions solely between the Company's subsidiaries and
                  between the Company and one or more subsidiaries and
                  transactions involving the Company or any subsidiary in which
                  the voting securities of the Company outstanding immediately
                  prior thereto continue to represent (by either remaining
                  outstanding or being converted into securities of the
                  surviving entity or the parent thereof) at least 75% of the
                  combined voting power of the voting securities of the
                  surviving entity or the parent thereof outstanding immediately
                  after the consummation of the transaction), (ii) the
                  disposition, by sale, lease, exchange or otherwise, other than
                  in the ordinary course of business, of assets of the Company
                  or any of its subsidiaries representing in either case 50% or
                  more of the



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                  consolidated assets of the Company and its subsidiaries, or
                  (iii) the issuance, sale or other disposition of (including by
                  way of merger, consolidation, share exchange or any similar
                  transaction) securities representing 50% or more of the voting
                  power of the Company or any of its subsidiaries.


         Section 2. Right of First Refusal. Prior to entering into any
Acquisition Agreement, the Company will proceed as follows:


         A.       The Company will advise City and Sovereign in writing of the
                  price and all other essential terms and conditions under which
                  it would be willing to enter into an Acquisition Agreement
                  with either City or Sovereign (the "Notice").


         B.       City and Sovereign shall each within ten (10) days following
                  receipt of the Notice advise the Company in writing whether or
                  not it is willing to enter into an Acquisition Agreement with
                  the Company at the price and on the other terms and conditions
                  set forth in the Notice. In the event that only one of City
                  and Sovereign advises the Company that it is willing to enter
                  into such an Acquisition Agreement, the Company and the
                  interested party shall negotiate in good faith with a view
                  toward the execution of a legally binding Acquisition
                  Agreement.


         C.       In the event that both City and Sovereign advise the Company
                  that they are willing to enter into such an Acquisition
                  Agreement with the Company at the price and on the other terms
                  and conditions set forth in the Notice, the Company shall
                  negotiate in good faith with each of City and Sovereign with a
                  view toward the execution of a legally binding Acquisition
                  Agreement with the party which offers terms most favorable to
                  the Company. The Company's decision as to which party's terms
                  are most favorable shall, if made in good faith, be final and
                  binding upon City and Sovereign.


         D.       In the event that each of City and Sovereign advises the
                  Company that it is not willing to enter into an Acquisition
                  Agreement with the Company at the price and on the terms and
                  conditions set forth in the Notice, or fails to advise the
                  Company of its intentions within the ten (10) day period
                  referred to in Paragraph B above, the Company shall be free
                  for a period of ninety (90) days following the expiration of
                  such ten (10) day period to enter into an Acquisition
                  Agreement with a third party at a price and on other terms and
                  conditions no more favorable to such third party than those
                  set forth in the Notice; provided, however that the Company
                  shall forward to City and to Sovereign a complete copy of the
                  Acquisition Agreement as negotiated with such third party at
                  least five (5) business days before it is signed.




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         E.       In the event that the Company does not enter into an
                  Acquisition Agreement with a third party within the ninety
                  (90) day period referred to in Paragraph D above, the Company
                  must once again follow the procedure set forth herein prior to
                  entering into an Acquisition Agreement with any third party.


         F.       The foregoing right of first refusal shall expire
                  automatically: (i) as to City on the 7% Termination Date as
                  defined in Section 5.19 of the City Agreement, (ii) as to
                  Sovereign on the 7% Termination Date as defined in Section
                  5.19 of the Sovereign Agreement, and (iii) as to both City and
                  Sovereign when the Company enters into an Acquisition
                  Agreement with City, Sovereign or a third party after having
                  duly followed the procedures set forth herein.



         Section 3. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by registered air
mail, postage prepaid, or sent by facsimile transmission with a confirmation
copy sent by registered mail, and shall be deemed given when so mailed:


         A.       if to the Company, to 1000 Parkwood Circle, Atlanta, Georgia
                  30339, Attention: Jeffrey S. Moore, or to such other person at
                  such other place as the Company shall designate to the
                  Purchaser in writing;


         B.       if to City, to 25 Gatewater Road, Cross Lanes, West Virginia
                  25313, Attention: Robert A. Henson, Chief Financial Officer,
                  or at such other address or addresses as City may have
                  furnished to the Company, with a copy to Hunton & Williams,
                  951 East Byrd Street, Richmond, Virginia 23219, Attention:
                  Randall S. Parks;


         C.       if to Sovereign, to 1130 Berkshire Boulevard, P.O. Box 12646,
                  Reading Pensylvania 19612, Attention: Jay S. Sidhu, or at such
                  other address or addresses as City may have furnished to the
                  Company, with a copy to Stevens & Lee, 607 Washington Street,
                  P.O. Box 679, Reading, Pennsylvania 19603-0679, Attention:
                  Clinton W. Kemp; or


         D.       if to any transferee or transferees of City or Sovereign, at
                  such address or addresses as shall have been furnished to the
                  other parties hereto at the time of the transfer or transfers,
                  or at such other address or addresses as may have been
                  furnished by such transferee or transferees to the other
                  parties hereto in writing.



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         Section 4. Amendments. No amendment, interpretation or waiver of any of
the provisions of this Agreement shall be effective unless made in writing and
signed by the parties to this Agreement.


         Section 5. Headings. The headings of the sections, subsections and
subparagraphs of this Agreement are used for convenience only and shall not
affect the meaning or interpretation of the contents of this Agreement.


         Section 6. Enforcement. The failure to enforce or to require the
performance at any time of any of the provisions of this Agreement shall in no
way be construed to be a waiver of such provisions, and shall not affect either
the validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every provision in accordance with the terms of
this Agreement.


         Section 7. Governing Law. This Agreement and the relationships of the
parties in connection with the subject matter of this Agreement shall be
governed by and determined in accordance with the laws of the State of Georgia
in the United States of America.


         Section 8. Severability. If any severable provision of this Agreement
is held to be invalid or unenforceable by any judgment of a tribunal of
competent jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and the Agreement shall be carried out as nearly as possible
according to its original terms and intent.


         Section 9. Counterparts. This Agreement may be executed in
counterparts, all of which shall constitute one agreement, and each such
counterpart shall be deemed to have been made, executed and delivered on the
date set out at the head of this Agreement without regard to the dates or times
when such counterparts may actually have been made, executed or delivered.


         Section 10. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of, as the case may be, and be
enforceable by and against the parties hereto and their respective successors
and assigns, but neither this Agreement nor any of the rights, interests or
obligations of the parties hereunder shall be assigned by any of the parties
hereto without the prior written consent of each of the other parties.





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         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives the day and year first above
written.



                                       MEGO MORTGAGE CORPORATION



                                       By:   /s/ Jeffrey S. Moore
                                             ----------------------------------
                                             Name:      Jeffrey S. Moore
                                             Title:     President


                                       CITY NATIONAL BANK OF WEST
                                       VIRGINIA


                                       By:   /s/ Robert A. Henson
                                             ----------------------------------
                                             Name:      Robert A. Henson
                                             Title:     Chief Financial Officer


                                       SOVEREIGN BANCORP, INC.



                                       By:   /s/ Jay S. Sidhu
                                             ----------------------------------
                                             Name:      Jay S. Sidhu
                                             Title:     President and Chief
                                                        Executive Officer







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