1. Many EB-5 applicants use one or more aged assets as collateral to secure loans. If the applicant acquired property more than seven years ago, it is possible to document the lawful source of the funds used to acquire the property and submit that evidence with the I-526 petition. However, when such assets were purchased with a large lump-sum payment in the last two to three years, USCIS often issues Requests for Evidence (RFE). These requests have typically sought bank statements corroborating the retained income to the date of purchase for the property. If available, these statements should be included with the I-526 filing in order to avoid an RFE and consequent delay in processing. However, if such statements show large inward transfers prior to the transaction, the lawful source of the transfers must also be documented and explained.
2. Cases in which the investor earned a significant amount over the past 20 years, but used the majority of total income, say 80%, in purchasing the property used for the investment funds, can be problematic. USCIS is likely to issue an RFE seeking an explanation of how the investor’s family was supported financially, given that the majority of the investor’s income was used to purchase the property. In such cases, we often document the investor’s annual income and expenses to establish that a majority of that income was saved in the years preceding the property purchase rather than being used for the family’s support.
When the investor uses the majority of earned income to acquire a home that is the source of funds, but does or has not commanded a high salary, this may trigger questions about the ability to repay the EB-5 loan. When dealing with an ability to pay issue, it is important to document the investor’s annual income and expenses to show that the investor had enough funds both to live on and to repay the EB-5 loan.
3. If the investor secures the funds using property as collateral, there will normally be a lien recorded on the title deed. However, in most cases the loan creditors do not create such a record, especially for microcredit companies, which are licensed lending institutions in China. In some cases the title deed indicates a mortgage loan recorded when the investor purchased the property but no such record when the client mortgages the property for his EB-5 loan. We have not yet seen an RFE questioning this practice but believe it may only be a matter of time.
4. If the current market value of the collateral is close to the loan amount, this warrants inquiry into whether there is a bone fide loan. Normally, the loan amount should not exceed 70% of the property’s market value.
5. Investors should always avoid using unsecured loans for two reasons. First, USCIS might question who bears the investment risk, the investor or the unsecured loan creditor? Second, unsecured loans will likely be treated as gifts, in which case, the source of the giftor’s money must be explained.
6. If a home equity loan is extended by a creditor that is not a bank or a licensed lending institution, the financial ability of that creditor to make such loans must be clearly and comprehensively documented. If the loan is obtained from the investor’s own company, not only must s/he document the company’s financial ability to extend the loan, but the investor’s ownership of or interest in the company must also be established, as well as evidence of the lawful source of the initial investment and each subsequent investment in the company. A formal loan approval resolution issued by the board of directors should also be included with the I-526.
7. Investors previously relied heavily on family and friends to wire the investment funds to the U.S. from their own accounts. But now, investors are more and more frequently using a special service (优汇通) provided by Bank of China to wire the $545,000 to the escrow account via a single transfer. Unlike the old suspicious tactic, with the investor finding at least 11 individuals to transfer $545,000, this new approach is more efficient, from the investor’s perspective, and lawful, from USCIS’s perspective, because such services are approved by China’s regulatory department and are provided by one of China’s biggest banks. Thus, investors should be encouraged to use this new efficient and lawful approach to exchange and transfer the funds out of China.
8. It is not recommended that investors who have received and used undisclosed commissions, or other forms of compensation expressly prohibited the Articles of the Chinese Anti Unfair Competition Law, use those funds for their EB-5 investment.
For more information on the EB-5 investor program, please click here to REGISTER for the Wolfsdorf Immigration Law Group Free EB-5 webinars series. The first webinar was held on July 16, 2013 and provided an overview of all aspects of EB-5 visas including “hot topics” and both Regional Center investments and direct/stand-alone EB-5s. This will be followed by the remaining three webinars:
- Intermediate Part 2 – Critical Issues in EB-5 practice, including Due Diligence, on August 14, 2013;
- Advanced Part 3 – Setting-up and Operating Regional Centers on September 18, 2013; and
- Hot Topics Part 4, including Securities Issues & Challenges, on November 19, 2013.