NovaStar Home Mortgage Inc. and NovaStar Financial Inc., national lenders which face class action suits across the country for allegedly violating the Securities Exchange Act, are also targets in Madison County Circuit Court.

Early last month, Novastar filed a motion and removed a local case to federal court taking it out of Madison County. However, on Dec. 30, a federal judge remanded the case back to the 3rd Circuit.

A class action suit filed Oct. 29 by Karen Miller of Madison, accuses 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 alleges that plaintiffs and class members received fraudulent HUD-1 statements that included phony:

  • Entries regarding the recipients of various settlement fees.

  • Entries regarding the amount of the settlement fees actually being paid to the service providers who were identified; and

  • Information regrding the basis upon which the identified servide provider was actually receiving a fee.

    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."

    04 L 1216

  • More News