May 24, 2019
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Ellsworth home loan firm’s ‘American Dream’ plan misled consumers, AG’s office says

Gabor Degre | BDN
Gabor Degre | BDN
John Linnehan

An Ellsworth home loan and real estate firm has settled with the state after allegedly misleading consumers who enrolled in the company’s “American Dream Path to Home Ownership Plan.”

Customers who enrolled couldn’t afford the arrangement and lost money when they withdrew, according to the state attorney general’s office, and some believed they were buying a home instead of renting with the option to purchase.

The company, Linnehan Homes, has agreed to make a number of changes to the plan, including partial refunds to customers who withdraw early and more time for customers to review plan documents before signing, state officials said in a prepared statement. Linnehan Homes has also agreed to revise the plan’s documents and promotional statements to address concerns raised by the attorney general’s office.

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John Linnehan Jr., president of the company, said his company did not violate Maine law but was fine with changing the wording of plan documents and marketing materials. He said the company had been telling all customers that the plan was a lease with an option to buy.

“We were already doing that, but [the state] wanted a minor change in language,” Linnehan said. “Never would we do anything like [mislead the customer].”

According to the attorney general’s office, customers who enroll in Linnehan Homes’ plan typically cannot obtain a mortgage from a traditional lender because of low credit scores or inadequate credit history. When they enroll, they sign a lease agreement to rent a home from the company as well as a four-year renewable purchase option agreement that requires the consumer to pay a down payment and an annual option payment.

The option payments are applied toward the purchase price of the home if the consumer exercises the option to buy, state officials said. The down payment and any annual option payments made were nonrefundable if the consumer withdrew from the plan.

“This rent-to-own plan is a big commitment, and consumers can lose a lot of money if they can’t afford it or if they have to move after several years,” Maine Attorney General Aaron Frey said in the statement. “Consumers who are considering Linnehan Homes’ Plan should consult with an attorney before enrolling.”

The company has agreed to use language and disclosures to clearly inform consumers that they will be renting a home with an option to purchase if they enroll in the company’s plan. The company will also give consumers at least a week to review documents before they sign up for the plan, and it will refund 50 percent of all option payments paid by the consumer, less amounts owed by the consumer, if the consumer withdraws from the plan within two years of signing.

Linnehan Homes has also agreed to reimburse some consumers part of their option payments, according to the attorney general’s office.

In a statement on the company’s website, Linnehan said that the firm currently is “not doing any Path to Home Ownership Plans. We are selling homes on the [real estate multiple listing service]. I’m focusing most of my time on my ministries and family activities for the next few months.”

Linnehan said Tuesday that he is not keen on part of the settlement that requires his company to refund 50 percent of all option payments paid by the consumer if the consumer withdraws from the program within the first two years. It is common practice in the home loan business for payments that go toward the purchase price of a home to be nonrefundable, he said.

“I just don’t think that is fair,” Linnehan said.

He said he will “take a few weeks” to decide whether to resume accepting new applicants into his company’s home ownership plan.

The settlement announced Tuesday is not the first time a financing company run by Linnehan has attracted the scrutiny of state regulators.

In 2002, Linnehan’s Credit Now Auto Co. and its financing arm, Atlantic Acceptance Corp., agreed to forgive more than $2.8 million in outstanding consumer car loans after it reached a settlement with the attorney general’s office. The state had filed suit against the car company for repossessing and then reselling cars in a scheme that violated a “reasonable conduct” provision of the state’s unfair trade practices laws, state officials said at the time.



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