Should I get my own lawyer?

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During the Class Period, NovaStar was a real estate investment trust, also known as REIT, engaged primarily in the business of residential “sub prime” lending.

On April 13, 2004, this securities fraud class action was filed against NovaStar and the Individual Defendants on behalf of all injured investors who purchased NovaStar common stock, or sold NovaStar put options, between October 29, 2003 and April 8, 2004. The lawsuit alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The lawsuit alleges, among other things, that NovaStar and the Individual Defendants, who were controlling officers and/or directors of NovaStar, made materially false and misleading statements and omissions in NovaStar’s public reports and documents disseminated to the investing public. These statements and omissions concerned, among other things, NovaStar’s compliance with applicable regulatory requirements in certain states where it was doing business, thereby artificially inflating the price of the securities of NovaStar and damaging members of the Class.

The lawsuit seeks money damages against the Defendants for violations of the federal securities laws. The Defendants deny all allegations of misconduct contained in the Complaint, and deny having engaged in any wrongdoing whatsoever.

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The Court decided that everyone who fits this description is a Class Member: all persons who EITHER (1) purchased or otherwise acquired common stock of NovaStar Financial, Inc., (“NovaStar”) during the period from October 29, 2003 through April 8, 2004, inclusive, the (“Class Period”), and still held shares of stock as of April 8, 2004, OR (2) sold NovaStar put options during the Class Period whose option extended beyond, and was exercised after, April 8, 2004, AND (3) as a result of NovaStar’s actions, suffered damages.

Excluded from the Class are the Defendants; the subsidiaries and affiliates of NovaStar; the officers and directors of NovaStar or its subsidiaries and affiliates, at all relevant times; members of the immediate family of any excluded person; the legal representatives, heirs, successors, and assigns of any excluded person; and any entity in which any excluded person has or had a controlling interest.

Please refer to the Notice for full details regarding participation in the Settlement.

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We cannot offer any advice as to what you should do. With that said, you have four options:

First, you may submit a Proof of Claim Form. This is the only way to get a payment from the Settlement. You must complete and mail your Proof of Claim Form, along with appropriate supporting documentation to the Claims Administrator, at:

In re NovaStar Financial, Inc. Securities Litigation
c/o Analytics, Inc.
P.O. Box 2006
Chanhassen, MN 55317-2006

Claim Forms must be postmarked no later than May 15, 2009 to be considered timely.

Second, you may request to exclude yourself from the Class. If you exclude yourself from the Class, you will not be bound by any judgment in this Action, nor will you be entitled to a payment from the recovery in this Action. If you wish to exclude yourself, you must mail a request for exclusion to the Claims Administrator at:

In re NovaStar Financial, Inc. Securities Litigation Exclusions
c/o Analytics, Inc.
P.O. Box 2006
Chanhassen, MN 55317-2006

Exclusion requests must be postmarked no later than March 9, 2009.

Third, you may object to the Settlement or any of its terms. To object, you must send a signed letter, stating the reasons why you object to the Settlement. Be sure your letter includes your name, address, telephone number, and your signature, and identifies the date, price, and number of shares of all purchases, acquisitions, and sales of NovaStar common stock or put options you made during the Class Period.

Your objection must be filed with the Court, and served on the attorneys identified in the Notice, on or before March 9, 2009.

Finally, you may do nothing. If you do nothing, you will not receive a payment from the Settlement and you will be bound by the terms of the Settlement.

For additional details regarding your rights and options, please refer to the Notice.

Examples of acceptable supporting documentation are:

1. A broker confirmation slip that lists the security name, name of the beneficial owner, type of transaction, the date of the transaction, the number of shares, the price per share, and the total amount of the transaction.

2. Monthly stockbroker statements reflecting your opening and closing balances for the time period specified on the claim form, and all transaction activity within that period.

3. A signed statement on broker letterhead, giving all detailed information found on a broker confirmation slip.

If any such documents are not in your possession, please obtain a copy or equivalent documents from your broker or tax advisor, because these documents are necessary to prove and process your claim.

Please note that while you must provide appropriately dated documentation of the beginning and ending quantities held, if either of these holdings are zero, you do not need to document that, simply write in zero.

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The Settlement will create a fund consisting of $7.25 million in cash plus accrued interest. The Settlement fund will be used for the settlement of the Action, the payment of taxes, settlement administration costs, and attorneys’ fees and expenses.

Your actual recovery will be affected by the number of claims filed, the number of shares you bought and if and when you sold your shares. Please refer to the Plan of Allocation in the Notice for additional details regarding the calculation of your Recognized Loss.

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In The Court will hold a Fairness Hearing at 9:00 a.m. on April 14, 2009 at the United States District Court for the Western District of Missouri, Charles Evans Whittaker Courthouse, 400 E. 9th Street, Kansas City, Missouri 64106.

At the Fairness Hearing, the Court will consider the proposed Plan of Allocation for the proceeds of the Settlement and the application of Plaintiffs’ Co-Lead Counsel for attorneys’ fees and reimbursement of expenses. If there are objections, the Court will consider them at the Settlement Fairness Hearing. At or after the Fairness Hearing, the Court will decide whether to approve the Settlement.

We do not know how long these decisions will take, so please be patient.

You should be aware that the Court may change the date and time of the Settlement Fairness Hearing. Thus, if you want to come to the hearing, you should check with Plaintiffs’ Co-Lead Counsel before coming to be sure that the date and/or time has not changed.

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You can call the Claims Administrator toll free at 1-(877)-556-8144, or write to:

NovaStar Financial Securities Litigation
c/o Analytics, Incorporated Claims Administrator
P. O. Box 2006
Chanhassen, MN 55317-2006