On October 23, the Michigan Attorney General (AG) announced a lawsuit in state court against three affiliated real estate companies, alleging that their “Homeowner Benefit Program” offered “nothing more than cash loans at usurious interest rates,” secured by 40-year liens on consumers’ homes. The companies’ program has drawn scrutiny from other state attorneys general (previously covered by InfoBytes here, here, and here).

According to the complaint, the companies marketed cash “promotion fee” payments of generally $300 to $500 as a “loan alternative” with no obligation to repay. In exchange, the agreements gave the companies the exclusive right to list the home for 40 years. The complaint alleges that if the companies handled a sale, the homeowner would owe a 6 percent commission, or, if a cooperating broker was involved, a 3 percent commission. If the companies were not involved in the sale, the homeowner would typically owe an early termination fee of 3 percent of the home’s value, as determined by the companies. The companies allegedly recorded memoranda on roughly 1,023 Michigan homes, “most, if not all,” of which were primary residences. According to the AG, more than 900 remain active. According to the complaint, the memoranda functioned as liens and would bind future owners, even though the companies told consumers they only had to “consider” the companies when selling, had no further obligation after a six-month listing period, and were not subject to a lien. The complaint further alleges that none of the companies hold a valid Michigan real estate license or employ individuals with licenses to provide real estate services in Michigan.

The complaint asserts violations of the Michigan Consumer Protection Act, alleging that the companies misrepresented that the payments were not loans and failed to disclose the 40-year term and the liens. It also asserts public nuisance claims premised on alleged violations of the state’s Regulatory Loan Act and criminal usury law, as well as a civil usury claim. Invoking the CFPA, the AG further alleges violations of TILA and the Home Ownership and Equity Protection Act, including failures to disclose the finance charge and annual percentage rate, assess consumers’ ability to repay, and provide notice of the right of rescission. The AG seeks, among other things, injunctive relief, rescission of the agreements and release of the memoranda, restitution, and civil penalties.