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                          NONRECOURSE PROMISSORY NOTE


$691,778.00                                                      January 1, 2001


     FOR VALUE RECEIVED, the undersigned, Scott F. Hartman, promises to pay to
the order of NovaStar Financial, Inc., a Maryland corporation (the "Company"),
the principal amount of Six Hundred Ninety-one Thousand, Seven Hundred Seventy-
eight and 00/100 Dollars ($691,778.00) without interest.

     This Note is secured by Seventy-two Thousand Two Hundred Twenty-two
(72,222) shares of common stock of NovaStar Financial, Inc. owned by the
undersigned.

     Without impairing or otherwise limiting the Company's rights and remedies
with respect to the collateral given for this Note, the undersigned shall not be
liable personally for the repayment of the indebtedness evidenced by the Note,
and the Company waives its right to enforce against the undersigned a judgment
posing liability for any deficiency in payment of the indebtedness evidenced by
this Note.

     Principal shall be payable in ten (10) equal installments of Sixty-nine
Thousand, One Hundred Seventy Seven and 80/100 Dollars ($69,177.80) beginning
December 31, 2001.

     Payment of principal then due will be forgiven by the Company if the
undersigned remains in the employ of the Company on the due date.

     If prior to maturity there is a "Change of Control" in the Company or if
the undersigned's employment is terminated by the Company other than for "Cause"
or by the undersigned for "Good Reason," as those terms are defined in the
undersigned's Employment Agreement with the Company, all remaining unpaid
principal and interest due under the Note shall be forgiven.

     In addition, a bonus will be paid by the Company to the undersigned in the
amount of personal tax liability resulting from the forgiveness of debt that is
in excess of the after-tax dividends from the common stock securing this note.
The after tax dividends are calculated as the dividends paid on the common stock
securing this note, reduced by the amount of the personal tax liability
resulting from the dividends.  If the after-tax dividends from the common stock
securing this note are greater than or equal to the personal tax liability, no
bonus relating to this note will be paid.

     Principal shall be payable in full at maturity, which maturity date is the
earlier of (i) the sale of the underlying securities, (ii) the termination of
the undersigned's employment with the Company or (iii) December 31, 2010.

     This Note may be prepaid in full or in part at any time.

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     If default be made in the payment of principal when due, then the whole sum
of principal shall become immediately due and payable at the option of the
holder of this Note, without notice or demand.

     Promisor shall pay all costs and expenses, including reasonable attorneys'
fees, incurred by the holder hereof in the collection of this Note.



     /s/ Scott F. Hartman
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Scott F. Hartman



NovaStar Financial hereby consents to
the waiver of remedies and the limitation
of rights contained in this Note.


By:  /s/ Rodney E. Schwatken
     ------------------------------
Vice President and Treasurer

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