EB-5 Green Card Myths and Red flags - as seen in BusinessTech

August 2019

 This article appeared in the South African online publication BusinessTech.

The increase in inquiries into the EB-5 Green Card investment visa for the United States has reached a fever pitch in South Africa. This is largely due to the imminent increase in the investment amount and deteriorating conditions in the SA economy and social fabric. 
As a result of this, there is a plethora of misinformation and frankly, falsehoods being shared by unscrupulous organizations, which are using this deadline to scare people into making unwise decisions. These 'advisors' have insufficient knowledge about how the program ACTUALLY works and how to discern a good project  from a high risk one and are selling investments that pay them the most money in commissions, rather than what is good and beneficial for their clients.

A quick Google search will reveal that the EB-5 industry is a minefield of catastrophes and failures because investors do not know the correct questions to ask and how to conduct a proper due diligence exercise, and trust these advisors unwittingly at their peril. 

PathwayUSA has been operating in South Africa since 2006 and we have heard it all! Pathway USA prides itself on being an independent and critical resource for those wanting the honest bottom line.

Here are some of the myths and red-flags we have heard from clients over the last few months who have been told complete nonsense regarding the EB-5 price increases, rules and regulations:

• IMPORTANT: The EB-5 program is set to expire on September 30th, 2019, and at this time there MAY be a legislative change to the recently published rule by the US CIS increasing the investment amount to $900K in a TEA and $1.8M in a Non-TEA. While this could happen, the industry would not support these amounts and differentials. Moreover, it appears as though there will be a short term extension of the Appropriations Bill until late November 2019 or early December 2019. If that occurs, no new legislation would be enacted. 
• IMPORTANT: If the US Congress gets their act together and acts by the US fiscal year-end on September 30, 2019 and passes new legislation regarding the EB-5 amounts, it could be increased to $800K in a TEA and $1.05m in a non-TEA.  This is already a prepared piece of legislation on the desk of Senate Judiciary Chairman Senator Lindsay Graham (SC). There is, in our opinion a 50/50 chance of this occurring. So if you want to be prudent, you would invest before September 30, 2019, to make sure you are not subject to the proposed legislative increase to $800K or the definite regulatory increase to $900K posted by the US CIS effective November 21, 2019. 
• MYTH: "Guaranteeing your money will be safe and returned to you when an I-829 is filed after 2 years of having your provisional green card (I-526)." This is called a "guaranteed redemption" and is illegal as it is against the rules of the EB-5. While it is possible to be paid back at the time of filing your I-829 and having complied with the 2 (two) year residency requirement, please remember that the project has to pay back the Regional Center you invested in. Therefore, you must look to the merits of the project! 
• MYTH: "Assuring people that they only have to spend a minimum time in the US after they receive their green card."  Only being required to spend 180 days in the US has been mentioned and then you can return to SA. This is completely incorrect.  The US CIS wants to see that it is your INTENT to be a permanent resident in the US and if you spend the majority of your time out of the US during your 5-year green card status, at worst you run the real risk of losing it completely as you could be deemed to have abandoned your residency. Thus, you must be careful. There are strategies to manage this but they must be well thought out. Moreover, when you file for your citizenship you must spend at least half of your time in the U.S and long absences can jeopardize the application.

When selecting an investment project it is of paramount importance that you understand and ask the following questions:

• Is the Capital Stack fully funded? If it isn't and the project is relying on a large chunk of EB-5 investors to complete, then that is a red flag. Ask for proof in writing if they say it is. Most projects are NOT fully funded.
• Is there at least 25% cash equity in the project? Get proof thereof. While there may be good reasons why not, it is critical to understand and see an explanation.
• Ascertain whether they NEED your investment or if they would LIKE your money. This is critical to establishing if this is a risky project or not. Projects that appear desperate to get their hands on your money are to be avoided. Projects that would like your money because it's cheaper money than loaning it from banks, are the ones to seriously consider.
• Claiming that the project is underwritten or insured by the US government is a negative rather than a positive as those are usually very risky projects.
• Is the Regional Center acting as a fiduciary for the investor or are they ACTUALLY the developer/construction company in disguise? Don't invest in a project where the Fox is in charge of the Hen-house. Or at a minimum, beware. Who is protecting your interests? 
• Do they have a real recent track record of success and credibility?
• Is the project in an area that needs the type of construction being built? Or is there an over supply of low-income residential housing in the area, or a real need for a hotel or condominium development in a city that is desperate for hotel beds in a popular tourist or convention destination? Is the project in a major regional development area or providing logistics warehousing and commercial space in a developing economic area?
• What plans does the developer have in place to repay the investors, bearing in mind that a bank loan takes first precedent in just about every situation, before the EB-5 investors? What does the contract say in this regard?
• Who is behind the development? Always good to Google all the investors and people behind the project and the more well-known the better. Be very careful of fly-by-night unknowns who sell a good story with pretty marketing materials, but have no substance.
• Get agreements and documents from the construction company or developer, if possible. Check that the loans have been approved as stated. 
• Check out who they are associated with, and what leading attorneys who have filed thousands of EB-5 cases, think of them! Be wary of attorneys who have little or no experience in this regard! 
• Ascertain what the TEA / Non-TEA status of the project will be after the  change in investment amount. This could negatively affect project completion if the project is reassigned into a non-TEA area.
• Projects that have an Exemplar approval are preferable. Ask to see the original US CIS documents and verify if possible.
• I-526 Insurance is a marketing gimmick! If it were useful, everyone would use it. Rather check to see what provisions have been made in the contract for when the money will be returned.
• If the Administrative Fee is being waived to lure you into investing, BEWARE. Why would someone who has to prepare thousands of pages of immigration and financial documentation for a period of 5-7 years, and judiciously manage your money for that amount of time, be willing to do it for a reduced fee, unless they are desperate for your money?  That is not to say that you cannot sometimes negotiate this fee with a Regional Center, if you are committed to going with their project. While negotiating the price of goods is okay (the item remains the same), negotiating the price of a service could mean a reduction in the quality of that service.
• If they are willing to pay for your legal fees, how can you be sure that you are getting the best counsel?  And who does the attorney really represent!? As we say in SA: "Goedkoop is duurkoop!"  (Trans. Penny-wise, pound-foolish)

PathwayUSA will be presenting 1-on-1 personalized workshop appointments all over South Africa during September 2019. For more information and bookings register here at www.pathwayusa.co.za

*Source information in this article provided by leading US immigration attorneys and Regional Center experts. 

---