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Immigration Concerns in EB-5 Investments in Defaulting Projects

Immigration Concerns in EB-5 Investments in Defaulting Projects

Since 1990, the EB-5 Immigrant Investor Program has paved the way to permanent resident status in the United States for thousands of immigrant investors and their immediate family members, generally constituting one of the quickest and easiest means of obtaining a U.S. green card. EB-5 investments are generally successful, but the EB-5 program stipulates a number of requirements investors must satisfy, and failure to do so results in EB-5 denial. One particularly dangerous situation for those with active EB5 investments is when the EB-5 project owner defaults on their loan, which can put the investor’s capital and immigration status alike at risk.

New commercial enterprises (NCEs) are required to preserve the capital and immigration status of its EB-5 investors to the best of its ability, so when a project owner defaults on their loan, an NCE must take various actions to protect its EB-5 investors. Depending on the circumstances, EB-5 investment participants may be able to retain their eligibility for immigration benefits despite a default.

Determining Sufficient Job Creation

One of the key requirements of the EB-5 program is the creation of no fewer than 10 full-time jobs filled by U.S. workers. Direct EB-5 investors must showcase at least 10 jobs on the NCE’s payroll or construction jobs that have lasted at least two years, which can be challenging if a project is defaulting and has not been completed. Regional center investors, on the other hand, may count indirect or induced jobs, which are determined through an economic analysis of the impact of the NCE’s spending and operations in the local economy. Even in an incomplete state, a project may still fulfill the job creation requirements, allowing the applicable EB-5 investors to maintain eligibility for a U.S. green card despite the project defaulting.

If, conversely, the NCE cannot demonstrate sufficient job creation to safeguard all its investors, it must engage in discussions with the project owner or a third-party purchaser to ascertain whether the project will continue as originally planned and whether the formerly projected jobs will still be created. If so, the NCE may suffer financial loss but nonetheless protect its investors’ eligibility for U.S. permanent residency.

Given this delicate situation, if an NCE learns that the EB-5 project it has invested in is in distress, it should immediately reach out to obtain the necessary documentation to showcase job creation. If a higher-up lender holds a foreclosure sale, the NCE may lose its rights to request such documents, creating a need for urgent action upon news of a default.

Navigating Material Changes Due to Foreclosure Sales

If a defaulting EB-5 project that has not created sufficient jobs to satisfy the needs of all its EB-5 investment participants is sold in a foreclosure sale, the EB-5 investors are thrust into a precarious situation. If the new business owner revamps the entity such that it constitutes a “material change” for United States Citizenship and Immigration Services (USCIS) purposes, it may still be possible for the EB5 investment participants to earn their immigration benefits. However, unless the NCE was repaid with excess capital derived from the foreclosure sale, it’s unlikely that the entity will have sufficient funding to make more EB-5 investments in the new project.

Such a scenario begs numerous questions: Would the NCE need to elicit extra EB5 investment funds from its investors? If so, how much extra capital would investors need to inject into the revamped project? Who would pay for the fresh business plan and economic report that would also be required for the new project? With careful planning with the project owner, it may be possible for the NCE to avoid making a new investment by preserving the job-creating ability of the original entity. This would be an NCE’s best bet, as the logistics around an additional EB5 investment may be tricky at best and impossible at worst.

If, on the other hand, enough jobs have indeed been created to satisfy the job creation requirement, an investor may still receive their immigration benefits regardless of a default. History has shown USCIS to issue I-829 petition approval even to investors whose EB-5 projects have failed in ways that have left them incomplete.