M.D.N.C. — Custer v. Dovenmuehle (IV): Transparency Wins Again — No Sealing of Documents at Summary Judgment (Post B- Bankruptcy Practice Tips and Sample Documents)

Below is a practitioner-focused review of what can be gleaned from the Custer v. Dovenmuehle record you provided — not as a case summary, but as a toolbox for attacking mortgage Proofs of Claim in Chapter 13, both against Dovenmuehle and other servicers who use similar practices. I focus on what Custer alleged, what DMI admitted (or couldn’t), and how those themes translate into objections, discovery, and plan practice in consumer cases.

I. What Custer’s case reveals about how servicers actually operate

Even without a merits ruling yet, the unsealed discovery tells us a great deal about how at least one major sub-servicer behaves — and where consumer lawyers can push back in bankruptcy.

A. “Optional” fees that are functionally unavoidable

Key takeaways from the admissions and depositions:

1. DMI treated phone payments as a fee-generating channel, not an accommodation.

   • The practice existed for “20-plus years” (Braun depo, pp. 36–39 of Ex. D).

   • The fee was not tied to any borrower default or special service; it was a routine way to pay.

2. Fees were set by market benchmarking, not cost accounting.

   • In Interrogatory No. 8, DMI admits it raised fees based on what “others in the industry” were charging — not on its own costs.

   • There is no evidence DMI ever analyzed its actual cost of processing payments.

   • This matters enormously in bankruptcy, because it undermines any claim that the charge is a “reasonable fee” recoverable under § 506(b) or the loan documents.

3. DMI could not (or would not) identify its “actual cost.”

   • In Response to RFA No. 7, DMI said it lacked information to calculate its own costs.

   • That admission is gold for debtors: if the servicer can’t quantify cost, it is very hard for them to justify a post-petition charge as “actual, necessary, and reasonable.”

II. What this means for Proofs of Claim in Chapter 13

Here are practical ways to translate Custer into claim litigation.

1. Attack “pay-to-pay” and similar junk fees as unenforceable components of the claim

When a Proof of Claim includes:

• “Processing fees”

• “Pay-by-phone fees”

• “Convenience fees”

• “Payment handling fees”

• “Transaction fees”

You now have a template for objection:

Arguments you can make

(a) Not authorized by the mortgage or note.
DMI tried to rely on boilerplate language that the lender may charge fees not “expressly prohibited.” That is backwards.

Many courts require affirmative authorization, not mere absence of prohibition. Use:

• The mortgage terms (often FNMA/FHLMC uniform instruments)

• Servicing guides

• State law (in NC, NCDCA and UDTPA principles)

(b) Not a recoverable charge under § 506(b).
Even if a fee exists, a secured creditor can only recover post-petition fees if they are:

• Provided for in the agreement, AND

• Reasonable and necessary

Custer shows that at least one servicer set fees by market comparison, not by cost — which undercuts “reasonableness.”

(c) Not a “cost of cure” under § 1322(b)(5).
If the debtor is curing arrears, “convenience fees” are not properly part of arrears unless:

• They are contractually required, and

• They actually relate to default.

Custer shows these fees were routine, not default-based.

2. Use discovery strategically in bankruptcy cases

Borrow from Custer’s playbook. Useful discovery requests in claim litigation:

1. Cost inquiry (mirroring Custer RFA No. 7):

Ask the servicer to admit or produce:

• The actual cost of processing a phone payment

• The vendor charge (e.g., ACI)

• Any internal analysis of profitability

• Whether fees exceed cost

If they say “we don’t know,” that helps you argue the fee is per se unreasonable.

2. Policy inquiry:

Request documents showing:

• When the fee was adopted

• Why it was increased

• Whether the increase was revenue-driven

• Whether any borrower alternatives existed (free channels)

3. Loan-type screening (Exhibit B themes).
   The record shows DMI had internal coding to decide which loans were charged the fee.
   In bankruptcy, ask:

• What criteria were used?

• Were some borrowers exempt? Why?

• Did this change over time?

Inconsistencies can support UDTPA-style unfairness arguments.

3. Recharacterize these fees as disguised interest or impermissible add-ons

Bankruptcy courts are increasingly skeptical of servicers using fees to supplement revenue.

You can argue:

• These are not “costs of collection” but a revenue stream.

• If so, they should be treated as unsecured claims — or disallowed entirely — rather than secured arrears.

This parallels arguments used in:

• Property inspection fee litigation

• Force-placed insurance cases

• “Default service” fee challenges

Custer gives you evidentiary support that at least some servicers treat these as profit centers.

III. Implications beyond Dovenmuehle

Although this case is against DMI, the practices described are industry-wide.

If any of these servicers include:

• “Convenience fees,”

• “Processing fees,” or

• “Payment channel fees”

Custer can be cited as evidence that these charges are typically market-based rather than cost-based.

IV. How this fits into Chapter 13 litigation strategy

Step 1 — Read the Proof of Claim closely

Look for:

• Added fees post-petition

• Unexplained “miscellaneous” charges

• Line items not tied to escrow, taxes, insurance, or principal/interest

Step 2 — File a targeted objection

Grounds:

• Not authorized by contract

• Not reasonable under § 506(b)

• Not part of arrears under § 1322(b)(5)

• Violates state law (NCDCA/UDTPA in NC)

Step 3 — Serve limited discovery (if necessary)

Model requests inspired by Custer:

• Identify actual cost of processing payment

• Produce vendor invoices (ACI or equivalent)

• Explain how fee was set

• Produce any analysis of profitability

• Identify when fees changed and why

Step 4 — Use the burden of proof

Remember: the creditor bears the burden to prove its secured claim amount is correct once you object.
Custer shows many servicers cannot substantiate these fees with real cost data.

V. Big-picture takeaway for consumer lawyers

Custer is not just about one borrower or one servicer. It exposes a pattern:

Mortgage servicers often impose “optional” payment-channel fees that are set by industry custom, not by actual cost, and are not clearly authorized by the mortgage.

That pattern is deeply vulnerable in Chapter 13.