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NovaStar Mortgage has agreed to settle a class action lawsuit for $5.1 million. The suit alleges the lender hid fees it paid to brokers for referring Washington homeowners to higher rate loans.

The settlement, reached Thursday, affects over 1,600 borrowers within the state.

Plaintiffs sued NovaStar, of Kansas City, Mo., last fall, claiming the lender did not disclose the “yield spread premium” fee it paid to brokers, as required by law, or did not disclose the fees until closing, when it was too late for borrowers to back out.

“We’re not challenging the legality of yield spread premium,” said one of the attorneys representing the plaintiffs. “This case was about, ‘If you’re going to pay a fee that’s ultimately going to come out of the borrower’s side, you have to tell them about it.’

Members of the class action lawsuit will each recover an average of $2,000 and a high of $20,000.

NovaStar contends they settled “to avoid further legal costs and allow the company to move forward.” According to the settlement agreement, NovaStar will pay $3.3 million to the plaintiffs and $1.8 million in attorney fees.

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