EX-8 3 form8k_060105exh81.htm EXHIBIT 8.1 TO FORM 8-K - IRVINE LAW GROUP, P.C. Exhibit 8.1 to Form 8-K

                             IRVINE LAW GROUP, P.C.
                               ATTORNEYS AT LAW
                            1300 BRISTOL STREET NORTH
                                    SUITE 100
                         NEWPORT BEACH, CALIFORNIA 92660
                            Telephone (949) 265-2620
                            Facsimile (949) 265-2640

                                  June 1, 2005

NovaStar Financial, Inc.
8140 Ward Parkway, Suite 300
Kansas City, MO  64114

          Re: Registration Statement on Form S-3

Ladies and Gentlemen:

     This is an  opinion  (the  "Opinion")  which you have  requested  as to the
discussion  entitled  "Federal  Income Tax  Considerations"  as set forth in the
Prospectus and the Prospectus Supplement (together, the "Prospectus"), contained
in the Registration  Statement on Form S-3 of the NovaStar Financial,  Inc. (the
"Company"),  filed  by  the  Company,  in  connection  with  the  issuance  (the
"Offering") of 1,725,000 shares of Common Stock.

     The Company is a Maryland corporation that is intended to qualify as a real
estate  investment  trust ("REIT") under the Internal Revenue Code (the "Code").
Capitalized  terms used in this Opinion and not otherwise defined are as defined
in the  Prospectus.  Our Opinion is based on existing  law,  including the Code,
existing  Treasury  Regulations,   Revenue  Rulings,  Revenue  Procedures,  U.S.
Department of Labor  regulations and  administrative  interpretations,  proposed
regulations   and  case  law,  all  of  which  are  subject  to  change   either
prospectively or retroactively. No assurance can be given that such existing law
may not change in a manner that would modify the  conclusions  expressed in this
Opinion.  Moreover,  relevant laws could change in a manner that could adversely
affect the Company or its  stockholders.  We have no obligation to inform you of
any such change in the law. We have not been requested to opine, and we have not
opined,  as to any issues  other than those  expressly  set forth  herein.  This
Opinion  extends  only to questions  under the Code.  We express no opinion with
respect to any other law or the laws of any other jurisdiction.

     Our  Opinion  is  based  upon  certain   statements,   representations  and
warranties  made by the Company as to factual  matters  regarding  the Company's
assets,  business  and  securities  as set forth in the  Prospectus,  and in the
Company's  letter of even date, to us, and we have assumed that such statements,
representations and warranties are true and accurate. As to such factual matters
material  to  our  Opinion,   we  have  relied  solely  upon  such   statements,
representations  and warranties of the Company. We have assumed the authenticity
of all documents  submitted to us, the genuineness of all signatures,  the legal
capacity  of  all  natural  persons,  the  conformity  to the  originals  of all
documents  submitted to us as copies and the due  execution  and delivery of all
documents   where  due   execution  and  delivery  are   prerequisites   to  the
effectiveness thereof. Without any independent




NovaStar Financial, Inc.
June 1, 2005
Page 2


investigation, no facts have come to our attention, however, that would cause us
to  question  the  accuracy  in  a  material  way  of  any  documents,  letters,
statements, representations or warranties of the Company.

     We are admitted to practice law in the State of California  and our Opinion
is limited to federal  law. Our Opinion is solely for the benefit of the Company
in connection with the Offering.

     Opinion: We have acted as tax counsel to the Company in connection with the
Offering.  In that  connection,  we have reviewed the section of the  Prospectus
entitled  "Federal  Income Tax  Considerations"  and in our opinion such section
identifies and fairly summarizes the federal income tax considerations  that are
likely to be  material to a holder of the  Company's  Common  Stock,  and to the
extent that such  summaries  involve  matters of law, we are of the opinion that
such statements of law are correct under the Code. We expressly confirm that all
of the  opinions  attributed  to tax  counsel in the  section of the  Prospectus
entitled "Federal Income Tax  Considerations"  accurately reflect our opinion on
the outcome of each such issue if  challenged  by the Internal  Revenue  Service
(the "Service").

     The Company's  qualification  as a REIT under the Code will depend upon the
Company's  ability  to meet,  through  actual  operating  results,  distribution
levels,   diversity  of  stock  ownership  and  the  various  income  and  asset
qualification  tests imposed under the Code.  Such operating  results may not be
reviewed by us as tax counsel,  and accordingly,  no assurance can be given that
the actual  results of the  Company's  operations  for any one taxable year will
satisfy  the  requirements  under  the Code for  REIT  qualification.  Moreover,
certain  aspects of the  Company's  operations  have not been  considered by the
courts or the Service.  There can be no assurance that the courts or the Service
will agree with this Opinion.  In addition,  qualification  as a REIT depends on
future transactions and events that cannot be known at this time.

     Consent:  We hereby  consent to the filing of this opinion as an exhibit to
the Registration  Statement and to the references to this firm in the Prospectus
under the captions  "Federal Income Tax  Considerations"  and "Legal Matters" in
connection with this opinion.

                                     Very truly yours,

                                     IRVINE LAW GROUP, P.C.

                                     /s/ Michael B. Shaff

                                     Michael E. Shaff