Introduction [00:00:00]
Peter Calabrese:
Hi, welcome. My name is Peter Calabrese. I’m CEO of CanAm Investor Services. CanAm Investor Services is the FINRA registered broker dealer affiliate of CanAm Enterprises, one of the largest running and certainly most successful regional centers in the history of the EB-5 program. So today we have the great pleasure of being joined by Ms. Jen Hermansky.
Jen is a shareholder at Greenberg Traurig. She’s one of the preeminent attorneys in the EB-5 program. She’s also the chairperson of the AILA EB-5 committee, and she’s here to talk to us a little bit about some of the adjudication trends we’ve been seeing in the EB-5 industry, some of the different structures that people have been using and how they’ve been getting reacted to by USCIS and their filings.
Jen. Thank you so much for joining us.
Jennifer Hermansky:
Happy to be here. Thank you so much for having me. I’m happy to talk to everyone today about issues that we’re seeing in USCIS adjudications of EB-5 petitions. So particularly issues where we see investors using partial investments, where they fund their EB-5 investments in installments to the escrow and also issues surrounding loans that investors get in order to fund their EB-5 investment or other, creative methods that we’re seeing right now. So happy to be here. I have been doing EB-5 for a very long time. I have worked with CanAm a number of times and we’ve had certainly many investors successfully go through their projects.
So we’re happy to share some knowledge today, particularly for those of you who are thinking about doing EB-5. We have a lot happening with the USCIS adjudications, and we’re going to talk all about that today.
Peter Calabrese:
Thank you so much, and you’ll see I went by your many accomplishments.
I would love to hear more about them but people who don’t know, Jen, you should and you can look up Greenberg’s website. Just a quick shot of CanAm’s track record, which we’ve talked about many times we’re very proud of. But I think we can move on to maybe some of the more content driven parts of this conversation.
So Jen, maybe let’s kick off and just. Talk a little bit about some of the trends that we’re seeing because, I think that the, that maybe if you want to just put an overarching theme over, what we’re seeing is that things are maybe getting a little bit more restrictive. Maybe some things that have been very accomplishable in the past that had been very approvable in the past and became a little bit more scrutiny.
Sometimes that scrutiny means very aggressive RFEs. Sometimes those that scrutiny means skipping past RFEs, going straight to those of intent to deny sometimes, which we’ve heard of as well. That means just going straight to denials for people. So these are things that are obviously going to make someone very nervous because what we love, what you love is predictability.
And you know what we also talked about, because we, when we approach these types of conversations like this, we want to make sure that we’re able to give people good practical advice that they can use towards making a good decision. And predictability really leads into that. So when we start to see things that maybe have been very approvable in the past, they’re all of a sudden getting a little bit more, it gets our antennas up.
And so we wanted to bring a few of those up in our conversation here today. Maybe if you could start talking, one of the big, and these are all these things that we’re going to talk about very, I’d say there, there are established pathways for people to go forward with their path to funds.
But maybe we can start with this first one. Which is for people who are funding their EB-5 investment and installments. I think a bear way to say that is people say, oh, I want to partially file, I want to partially fund and file a a, an I-526 gain. That priority date in place is very important for people, understandably, given the urgency that there is a need for market.
So maybe if you could talk a little bit about this pathway that people have been using, maybe what some of the treatment has been in the more recent adjudications you’ve been seeing.
EB-5 Reform and Integrity Act and Filing Urgency [00:04:18]
Jennifer Hermansky:
Yeah, absolutely. So I think some of these adjudications are being caused by the record number of cases being filed right now.
There are many people filing, and this is driven a lot by the EB-5 program itself. So just by way of a background to everyone listening here today. We had the EB-5 Reform Act passed in 2022, and in the Reform Act, it actually provides for very good protections for EB-5 investors, including a grandfathering provision that was specifically put in by the US Congress.
And it says if you fund an investment and file your I-526E petition. Prior to September 30th, 2026, so a little bit less than one year away. From now, you get grandfathered under the law, meaning that your $800,000 investment will stay $800,000. You will not be required later to invest more money if the program changes.
It also importantly means that the investor and their family members can continue going through the immigration process, all of the steps in the EB-5 process, even if our US Congress does not extend the EB-5 program in the future. So we know that EB-5 is extended through September 30th, 2027, but if you file before.
September 30th, 2026, one year before the expiration of the program, you get this grandfathering protection and it’s really important for the investors and we fully understand that they want to be protected. They want to know that even if our Congress fails to extend EB-5, beyond that time in 2027, they can continue through the process after making such a large investment.
And we fully understand that. So leading up to this deadline, I think there are a lot of people interested in EB-5. People are wanting to do this because EB-5 is self-sponsored. They can take control of their immigration process. And this is especially true in a time right now where there is some uncertainty in other types of processes and other types of green cards.
In the H-1B petitions, people are worried that their employers won’t want to. Sponsor them for these types of things. So EB-5 is becoming more attractive and people are rushing to file these cases. So we just want everyone to understand that EB-5 is a huge decision and you need to prepare your case correctly.
Installment Funding and USCIS Adjudication Trends [00:07:04]
Jennifer Hermansky:
And we know that leading up to September 30th, 2026, many investors will try to meet that deadline so that they can protect themselves and their family, which is great. But preparing for that time is very important. So working with the regional center and the new commercial enterprise where you’re going to invest, and also working with your attorney’s office to make sure that your case is strong.
We’re and funding the EB-5 investment installments or partial funding, as some people call it, is one type of strategy that investors use so that they can get their case filed earlier. Perhaps they will fund half of their investment, maybe $400,000 or some amount like that, and then they will remit the final installment of another $400,000 later.
So this is theoretically possible, and even though we’re seeing maybe some pushback from USCIS on installment method funding, I still think it’s entirely possible to do if you’re doing it correctly, right? It’s not that we have to be so scared about what USCIS is doing. Sometimes they push back.
We just make sure that we’re filing things correctly. So actually the EB-5 law, Pete, it is always said that an investor can be in the process of investing. This is not something that USCIS has done by policy or only in their policy manual or only on their website. In the process of investing is actually language in the EB-5 statute, and it’s been there since 1990.
And even when we had the Reform Act passed in 2022, it did not change this language. So we’ve had in the process of investing since 1990. We also have a standard by USCIS that when you’re filing your case, it needs to be approvable when filed, meaning you can’t make material changes later to a case that you’ve already filed to make it approvable.
So these two things have to work together when we’re filing the EB-5 petition. So what does that really mean when USCIS has been pushing back on this? So a few things. So first, again, I think it’s entirely possible to fund in installments, and what we know from recent adjudications is that USCIS firmly believes that you have to be committed to investing the remaining fund.
Okay, so number one, it’s my opinion it would never be acceptable to file an EB-5 petition with no money remitted. I think that would be easy [00:10:00] denial by USCIS. And one thing I want to caution from people is that I also don’t think it would be okay if you only remitted an administrative fee. No part of the capital contribution and then tried to file your case.
Definitely some portion of the capital contribution should first be funded to the escrow before any EB-5 petition gets filed. Then from there. There has to be an agreement between the investor and the new commercial enterprise that allows for the installment and commits the investor to send future installments by set dates.
This, I think, is key for USCIS, for you to be in the process of investing, and this I actually think comes from the matter of a Izzumi decision where. A very long time ago, the USCIS. Legacy INS Immigration Naturalization Service made some rules about the at-risk investment, and in that case, the investor was actually funding over time.
He, they, that person was obligated to fund over time and USCIS said. You can be in the process of investing, but there has to be a present commitment to invest. So I think having a side letter agreement with the new commercial enterprise and the regional center that you’re going to commit the additional funding is really important in order to meet that standard.
And then we know from other recent adjudications from USCIS that they want to see the investor in the EB-5 petition outline when those future installments will be sent. And they also want the investor to prove what is going to be the lawful source of funds for those future installments. And not only do they want you to tell them what the source of funds will be, they want you to submit the documentation to show the lawful source of funds for those future installments.
And this, I think, is really important for investors to understand because in the past, I think USCIS may have approved cases where the investor didn’t really outline extensively where the future installments will come from. In a request for evidence later, the investor may be submit. Some documentation about that.
But what I think USCIS is saying now is that we have to see what the source of funds is going to be for those future installments, which tells me that the investors really need to be prepared, right? This is. A, an exercise in how are you going to fund $800,000? And if I’ve given CanAm $400,000 today [00:13:00] and three months later the additional $400,000 is going to be due, but I don’t know how I’m going to fund that yet, then that’s maybe a problem, right?
So investors have to be prepared and be planned in advance. For what is going to be the full source of the funds and what is going to fund those future installments, especially if there’s not that much time in between when you make your original installment and when the full amounts of the money is due.
So I think those are really key. And I think there’s been some talk amongst EB-5 practitioners that. If the investor misses a deadline for funding those additional installments, that might be problematic for USCIS. We’re going to have to see how that plays out. So again, planning, I think, is key here.
And knowing when you’re going to remit the remaining funds and what is the source of those, and preparing the documents in advance is really key for that to be successful.
Peter Calabrese:
Which is really great insight because I think when we talk, we’ve talked a lot about doing source of funds and the type of preparation that goes into it.
I think this is just another extension of that of, what is being ready to go ahead with going and making this type of investment. It’s not enough to just say, I know I’ve got $800,000 coming. I’ve got a few different spots. Here’s the 400 that we’re going to start with, and then.
The other 400 will be coming from somewhere, this spot or this spot. It’s not enough to know that you are good for it, you have to actually show it, document it. Otherwise, USCIS is not necessarily going to be very lenient in terms of the, the changing that might go with it.
They don’t want to see, you missing deadlines that you’ve, that. Provided for them in terms of your funding. They don’t want to see additional information being interfiled potentially, or interfiled well after the last [00:15:00] installment was made, which could potentially lead to complications for it.
All of these things in terms of and it’s not to say that it’s impossible to get approval. I certainly couldn’t speak for that, but. When going forward, you want to make sure that you’re putting forward the best case possible, and I think that these sorts of guidelines are tremendously helpful for people in terms of trying to make sure that they’re doing that.
Jennifer Hermansky:
Yeah, and I think you bring up one really good point there, Pete, and for everyone listening today, I think the USCIS is signaling that once you’ve made that second installment, don’t wait for the RFE to come in, send us the documentation that you funded the remaining investment. And send us the path of funds relating to that final installment and whatever supplementary source of funds documents are required.
And even though USCIS has never published or even really stated a formal process for what inter filing is like, this is a lure of something for EB-5 related. It’s, I think, a good practice to mail in those documents. That way you can ensure then that the USCIS doesn’t claim later that you had some burden to do that.
And that they don’t have to send an RFE. I don’t think that’s correct. I think if USCIS is going to impose some sort of procedural burden on the invest. Or they’re going to make a new procedure that investors have to file to follow. They have to tell the public what that is. So USCIS should also, proactively tell people what to do in this scenario, because the reality is the statute allows for us to do this.
Investors should be allowed to do this, and if you want us to send in the documents before an RFE or something like that, then tell us what the procedure is that we should follow.
Loans as an EB-5 Source of Funds [00:16:56]
Peter Calabrese:
Yeah, exactly. Yeah. Again, predictability. Just let us know what the, let us know what the steps are and we’ll take them. But it, the lack of predictability is certainly, it’s the type of things that keep us up at night.
But I think another, just to, to shift down to another subject here, that has definitely been a big point, and it’s been a big spot that we’ve been hearing more and more from, is. The use of loans for part of the EB-5 investment. And I think all of these things are born out of the same genesis in that people are coming, they want to invest, they know that they have funds, but they’re still either compiling them.
Or they have some illiquid assets that maybe they’re, they have difficulty getting in terms of moving forward, but their preference is to invest sooner rather than later to start their priority date, going to start themselves going towards their benefits. So all of these different pathways have been ways to help to let people accomplish that while still also moving towards their adjudication goals.
Their immigration goals, but have now been seeing maybe some, [00:18:00] I don’t want to say pushback, but to see some reaction from USCIS in some of the ways that they’ve been getting structured. So let’s maybe talk a little bit about, and what you’ve been seeing in terms of the treatment by USCIS of loans being used for the completion of an EB-5 investment.
Jennifer Hermansky:
Sure loans are one of the most common types of source of funds that we see. Not everyone wants to liquidate their real property or their other assets. Their brokerage accounts and things like this that they’ve been. Yeah. Working to save
Peter Calabrese:
consequences or just, yeah, or just the returns that they’re making on those. They’d rather keep those parked where they are.
Jennifer Hermansky:
Exactly, and so loans have been used tale as old as time in EB-5, as I like to say. Probably the most common type of source of funds for EB-5 investors is to take out a secured loan against real property and then use that for EB-5. That is a proven type of source of funds that I am sure some very large percentage of all EB-5 investors use.
60% or something like that. So over time we’ve had a lot of USCIS guidance about what are the rules surrounding one, you want to use a loan as investment. Actually a little bit ago, I would say maybe six or seven years ago, there was a lot of controversy over loans. Could you only use a loan that was secured by the investor’s personal assets, or could you use an unsecured loan?
For an EB-5 investment that got settled through litigation quite some time ago, and the rule from the court in a federal court [00:20:00] decision said that. When you get a loan and then the investor receives the proceeds of the loan, that’s a cash investment into the new commercial enterprise. It’s specifically allowed, cash is specifically an allowed type of investment and therefore the loan being used as the source of funds did not need to be secured by the investor’s personal assets.
So maybe, I get a loan and. It’s secured by my parents’ property or something like that. That would be allowed, right? So the collateral that you were using didn’t need to be connected directly to the investor any longer. So that was a good development for investors and it allowed, a wide range of lending scenarios to be used.
So we can use a secured loan or an unsecured loan now. Then when Congress passed the EB-5 Reform Act, they made a few changes [00:21:00] actually in the lawful source of funds portion. They said that where you are taking a loan as an EB-5 investment, number one, that loan has to be made in good faith.
Secondly, they also said that where the loan is coming from a licensed bank. You don’t need to source the funds that the bank is using to give you the loan, which makes total sense. However, because there is no separate rule that says you can’t get a loan from another third party. Sometimes loans come from non-banking institutions, right?
I can take a loan from a family member, I can get a loan from the business that I own. So there’s a wide range of loan types of scenarios, and investors can talk about those with their lawyers, but essentially
Peter Calabrese:
Yeah. As long as the loan doesn’t circumvent the rules of the program they’re able to be used, right?
Jennifer Hermansky:
Correct. Correct. But in the RIA, it also said that where a non-bank is going to give you the loan. That third party has to show its lawful source of funds. So if I’m getting a loan from a family member or from my business, something like that, I have to document the source of the funds for that company or that person to give me the loan.
And importantly, when the loan is secured by some other asset. Generally, we also have to show the source of purchasing that. Asset that’s being used as collateral, which sometimes leads us to documenting more than $800,000 of source of funds, right? I’m documenting my own collateral and someone else’s loan to me.
But that being said, it can certainly be used as a source of funds so that, has given a full range of different types of loans. And finally, the USCIS has also said that where you’re taking a loan. You’re using the loan for EB-5 can’t be against the stated purpose of the loan agreement.
So if you get a loan from a foreign bank or some other institution abroad, and it the terms of the loan, say things like, you can’t transfer this money out of the country, or This money can only be used for your business. In China then we can’t use that as a source of proceeds for EB-5. That would be problematic and the USCIS can and will deny those cases.
But assuming that we can document where the loan is coming from, we can document any collateral if it’s there, loans are allowed. So this has also led to this new thing where sometimes there are regional centers or affiliates of regional centers that are marketing loans to investors. And this is another area where it’s possible for these to be structured correctly.
And for those to be potentially used, but much like the installment funding, I think USCIS is. Developing some rules surrounding it and they’re saying that these loans have to be made in good faith. They’re also really looking at what are the terms of the loan. Everyone who is considering this type of funding scenario should really be working, directly with their immigration lawyer to make sure these things are compliant.
I think the underlying theme here from USCIS is that they want to see cases where the investor has their $800,000 at risk and where they’re able to source that money fully. And much like the installment method where you’re not sure where that. Final installment might come from if you’re taking a loan and you don’t need to pay back that loan maybe to the regional Center affiliate for a very long time.
They seem to be, a little bit leery at USCIS about approving those too. So I think people need to talk it over with their lawyer about how will that loan be repaid and. When is it going to be repaid? Because those seem to be the key issues for USCIS in those scenarios.
We know that there are certainly many regional centers out there that have given loans to people, but they’re more shorter term loans. They have to be paid back and just a few months, and it’s the same as the installments. It just gives someone a little bit of time to liquidate an asset.
But really then the investor is liquidating that asset and paying the loan back. I think where the loan might not be repaid for many years, that gives USCIS a little discomfort that the investor, might never have to pay that loan back. So those need to be really looked at carefully.
Peter Calabrese:
Yeah. If the potential, if it lines up perfectly with when the, project matures or have the funds ever really been your funds in, in the first place.
Jennifer Hermansky:
Yeah. This is a really hard issue because I think there are legal arguments to say that maybe those are still fine. And the courts have said you can have an unsecured loan from a third party.
So what is the difference if this, affiliated third party has given me the loan or my parent has? So there are legal arguments on both sides, but this is another area where again, we have. September 30th, 2026 grandfathering deadline coming up. And the reality of it is that with the [00:27:00] processing times at USCIS, if you file something in a few months from now and it is denied.
After September 30th, 2026, you might lose out on the protections of those grandfathering things. So investors have to really think carefully about how they’re going to fund their investment. And again, this just goes back to planning appropriately for how you’re going to fund the full investment. I think the immigration service is concerned when people start filing their cases and there’s no real plan.
For how you will pay for the full $800,000. And this go, this is not new because I just read Matter of Izzumi again. And in that decision, which is like the seminal decision for EB-5 cases, the immigration service has been relying on this decision for 20 years. It says the USCIS has an interest in understanding how and when.
Full investment will be funded. And I think that holds true today.
Self-Directed IRAs and Alternative Structures [00:28:20]
Peter Calabrese:
So one other topic of that I know has become very popular, I know it’s also a platform that we will provide for people as well is the use of self-directed IRA funds for the funding of their investment, which again, comes back into that overall bucket of they have the funds, they have the funds in different places, and some some, helpful spots that, that you can try to allow for an investor to have a little bit more flexibility. Whereas, we don’t provide loans for people. We never have done that. Something like this is something that we do think is a reasonable way for them to access their funds. But also something that needs to make sure is done correctly when when structured.
So maybe if you could talk a little bit about this this use of S-D-I-R-A funds and maybe some of the NOIDS or some of the feedback that you’ve been seeing from USCIS on these.
Jennifer Hermansky:
Yeah, sure. So the self-directed IRAs, I think are, a quite popular option for many investors who are here already in the us We’re seeing an uptick of investors who are in some sort of non-immigrant status in the us use this.
Option, potentially because again, not everyone wants to liquidate assets that they have been saving for things like our retirement, in order to do the EB-5 investment and they want to maybe preserve things for tax reasons or, for other financial reasons, right? I’m not a financial planner, nor am I.
An accountant or a tax expert, but I’m sure there are many reasons why one wants to do this, right? So the answer is USCIS, or the question is USCIS going to allow this? I think here the answer is yes, they should. The self-directed IRA involves a custodian where the custodian will assist to make sure that the.
Alternative investment that the person is making will comply with the various tax laws and laws against self-dealing, right? So there is a custodian involved, but here in the S-D-I-R-A, it is self-directed and the custodian is actually not involved in selecting the alternative investment, which in this case would be EB-5.
I think here the investor is clearly the one selecting the investment and even though the. Partnership unit or a portion thereof might be held, by the custodian. It’s still clearly for the benefit of the investor and it’s still the investor’s property. This is very similar, Pete, to the issue that we had with.
Children as EB-5 investors, right? Sometimes a family has a foreign student who’s in university in the us they want their child to be able to do EB-5. Or maybe they’re in high school and boarding schools. A lot of kids like that who might’ve been under the age of 21 or under the age of 18.
And we have custodian rules. For how those accounts can be held and managed in the name of the child. And the same thing is true here with the custodian. I think that, investors need to make sure that number one, the project is prepared to accept these types of financing arrangements. And to, deal with the custodian on behalf of the investor.
They need to make sure that the project documents, like the subscription agreement and things like that are prepared appropriately to allow for these types of custodian relationships. And also here making sure that the project is planning from a tax perspective for how the tax documents will be issued.
But I think those things can be overcome and I think with the SD IRAs that it’s because of what an S-D-I-R-A is and its nature, it’s the person selecting their own. Investment and the person is managing that investment. The custodian’s not even managing it. So the investor has control over all the voting rights and the NCE partnership and things like that.
So I think the EB-5 rules are still being met here. The only thing is that. It should be done correctly. Make sure you’re working with your lawyer and the new commercial enterprise and the regional center to make sure it’s done appropriately. And there might be a little bit of an education issue with USCIS on this one, just like there was with the minors quite truthfully.
But I think that can be overcome with, good responses to USCIS about how these types of relationships are still qualifying.
Practical Guidance and Final Takeaways [00:33:13]
Peter Calabrese:
Yeah. No I agree. And I think that this is all great insight for people. This is the end of the prepared things that we had put together. I think these are great subjects, and I really think it all comes from.
To give a moment of caution and to give a moment of pause for people because you’re seeing it. We’re seeing it. The urgency is very real for people to move forward with maybe with EB-5 investments, given some of the things we’re seeing on the horizon, the grandfathering the end of grandfathering coming of September of 2026, the reality that there will be dates of final action in the set aside categories coming at some time, likely next year.
So when you put those things in together. The ability to file, the ability for US-based people to concurrently file to be able to get their priority date is hugely important. So that urgency is both there and it is valid, but as we get closer, that urgency’s only going to keep picking up. And so when we do see those, I think all these issues are things that are going to be very prevalent for people.
And I think that this is tremendous advice that you’ve been able to provide for people to say, Hey. Be prepared, prepare ahead of time. As much as you want to be ready, you might not be ready. And as much as you’d prefer to have, a, an October date on your 2025 date on your stamp. You’d rather have a December priority date with a very well put together and crafted petition that’s going to give you the best chance of getting your petition approved because none of this matters.
The priority date does not matter if you end up in a denial or you end up sidetracked having to deal with some sorts of RFEs and everything. As we, as I generally feel like I, I conclude a lot of these things it’s talk to your attorney. Make sure that you’re fully prepared, measure twice, cut once type of mentality to make sure that you have everything really ready.
Not just mostly ready to go ahead, but are there any other parts of very, of practical advice or insights that you could provide to people that you’d like to mention to people? The floor is yours.
Jennifer Hermansky:
Yeah, I just want to say, I think the theme of all of these recent cases from USCIS is to be prepared with how you’re going to fund the full amount of the $800,000 investment.
That part is very important. And then from there, work on documenting those things upfront. I cannot stress enough. That I agree with you, it makes sense to wait that extra month and translate all of those documents if you have to, and get those things prepared and put in place for your source of funds.
That is way easier than dealing. With [00:36:00] a denial after the fact by USCIS, and we know that recently USCIS updated their policy manual in the EB-5 section. That gives them additional discretion to just deny cases outright without an RFE or a notice of intent to deny. So there might not be a second bite at the apple just.
Take the time now to put together a very strong case that makes it harder for USCIS to do something like that, to use its discretion to hurt you later. And so be prepared. Work with your lawyer. Know where the full source of funds is coming from. Wait a little bit extra time if you have to, and just plan and be prepared so that you can take full advantage of the grandfathering benefits.
Peter Calabrese:
I couldn’t agree more. I think that’s great advice. And yeah don’t just assume that if something’s incomplete they’ll ask us about it, and they might not. They might just stop a stamp a denial on there and then you’re really playing an uphill battle. Jen, this was fantastic.
Thank you so much for your time. We really appreciate you having taking the time to describe all these things to your clients, to our potential investors, I think it’s tremendously helpful. So thank you so much. I hope you’ll come back again another time.
Jennifer Hermansky:
Of course. Thanks for having me, and good luck to everyone preparing your cases.
Peter Calabrese:
Awesome. Thank you Jen.
