first use generators
List = open("/path/to/file") #no need to call readlines ( a filehandle is naturally a generator of lines)
List2 = (s.strip() + ' time' for s in List) #calling strip will remove any extra whitespace(like newlines)
this causes lazy evaluation so you are not looping and looping and looping etc
then fix your line (this is the actual problem that is causing errors in your program)
for item in List2:
open('/home/user/Documents/%s.txt'%(item,), 'w')
# ^this was your actual problem, the rest is just code improvements
so your whole code becomes
List = open("/path/to/file") #no need to call readlines ( a filehandle is naturally a generator of lines)
List2 = (s.strip() + ' time' for s in List)
for item in List2: #this is the only time you are actually looping through the list
open('/home/user/Documents/%s.txt'%(item,), 'w')
now you only are looping through the list one time instead of 3 times
the suggestion to use a filePath variable to form your filename is also a very good one