NovaStar seeking dismissal from class action

Steve Gonzalez Nov. 10, 2005, 8:53am

National lenders NovaStar Home Mortgage Inc. and NovaStar Financial Inc., who face class action lawsuits across the country for allegedly violating the Securities Exchange Act, will attempt to dismiss a Madison County case during a Nov. 18 hearing.

Karen Miller of Madison filed the suit Oct. 29, accusing the lenders of making kickbacks to affiliate branches "to ensure a ready pipeline of nonconforming loan originations," according to the complaint.

The suit accuses Novastar (NFI) and Novastar Home Mortgage (NHMI) of defrauding class members by making undisclosed kickbacks to its unlicensed affiliate branches for placing nonconforming residential mortgage loans with Novastar.

"Counsel for plaintiffs and the class believe that in excess of $200 million in settlement fees was split unlawfully," according to the suit.

Miller is represented by Evan D. Buxner of the St. Louis firm Walther Glenn Law Associates.

Miller claims that NovaStar would retain a percentage of the settlement fees collected by affiliate branches on a basis wholly distinct from what was disclosed in the HUD-1 (Housing and Urban Development) settlement statements.

The suit also alleges NFI and NHMI attempted to cover up its violation of mortgage lending laws by terminating agreements with its affiliate branches in February 2004, retroactive to Jan. 1, 2004.

"In fact, NFI/NHMI was attempting to put the genie back in the bottle by retroactively addressing its illegal practices," according to the suit.

"These efforts included the dissemination of demonstrably false and material information by NFI officers regarding the affiliate branch structure during quarterly earnings conference calls."

NFI and NHMI are represented by the Burroughs Firm in Edwardsville. Circuit Judge Nicholas Byron will hear the motion at 9 a.m.

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