A federal judge has certified a class of borrowers in a pay-to-pay lawsuit against Dovenmuehle Mortgage, opening the servicer to a larger legal battle with potentially thousands of consumers.

U.S. Chief District Judge Catherine C. Eagles granted George Custer's motion for class certification last week, after he filed his complaint in April 2024. Custer argued that the private servicer is illegally profiting off servicing fees such as the $11.50 charge he paid when making a payment while speaking to a customer service representative. 

Law360 first reported on the class certification. 

In case filings contesting Custer's motions, Dovenmuehle argued its fees are not unfair practices by the North Carolina laws the plaintiff cited. In a 17-page memorandum opinion and order, Eagles wrote Custer met the legal requirements for class certification, and that questions also remain regarding Dovenmuehle's status as a debt collector. 

Neither a spokesperson for Dovenmuehle nor attorneys for the sides responded to requests for comment Monday. 

Custer's successful motion is an early win for borrowers in the pay-to-pay litigation, in which other consumers have recorded mixed success against servicers in recent years. Like other aggrieved borrowers, Custer claims mortgage payments over the phone cost servicers less than $0.50 per transaction to process, compared to the fees customers are assessed. 

Dovenmuehle today still lists the $11.50 charge for customers to make payments while speaking to a representative, and another $9.50 fee for borrowers to make payments via the company's interactive voice response system. 

In the recent order, Eagles also mentioned Dovenmuehle's refusal to produce loan agreements during the discovery process, as the company claimed they were irrelevant to the case. The servicer also contended that different class members have different loan agreements with different provisions to follow the laws in question.

"It is difficult to understand how such loan agreements went from being irrelevant to crucial," wrote Eagles. 

The certified class includes an unspecified number of customers in the thousands who had mortgages on North Carolina properties serviced or subserviced by Dovenmuehle, who paid fees. Custer accuses the company of violating the state's debt collection and unfair and deceptive trade practices acts.

The Lake Zurich, Illinois-based company as of the end of 2024 had a portfolio of mostly prime first-lien loans around $396 billion, according to a Standard & Poor's analysis this spring. 

Pay-to-pay suits persist in the industry

Pennymac also suffered an early defeat in a pay-to-pay lawsuit this month, when a federal judge rejected its motion to toss a separate North Carolina homeowner's claims. Clayton Williams sued the company for charging $15 for borrowers to pay their mortgage over the phone, also claiming it costs the servicer $0.50 or less per transaction. 

Other similar federal complaints against Newrez and Roundpoint Mortgage Servicing remain pending. 

Megaservicer Mr. Cooper successfully held off a pay-to-pay suit in August, after a judge granted summary judgment in favor of the company against a prospective class of borrowers. Those plaintiffs took issue with the company's $25 fee for expedited payoff quote statements, in which Mr. Cooper provided disclosures faster than the Truth in Lending Act's seven-day requirement. 

Those Mr. Cooper borrowers filed an appeal in October, and have yet to file an opening brief in the Ninth Circuit Court of Appeals case.