What Are the Immigration Concerns When an EB-5 Project Defaults?

For over 25 years, the EB-5 Immigrant Investor Program has provided U.S. permanent resident status to nearly a hundred thousand immigrants. The EB-5 investment program is generally seen as one of the quickest and easiest ways to obtain a U.S. green card. Although EB-5 investments are typically successful, the EB-5 program has several important requirements investors must satisfy, and failure to do so typically results in the denial of an EB-5 investment petition. One particularly dangerous situation for EB-5 investors arises when an EB-5 investment project owner defaults on their loan, which can put both the EB-5 investor’s immigration status and capital at risk.

New commercial enterprises (NCEs) have a fiduciary responsibility to their EB-5 investors, and when an EB-5 project owner defaults on their loan, an NCE maintains this responsibility. Depending on the specific circumstances, EB-5 investment participants may retain their eligibility for green cards despite a default.

How is Sufficient Job Creation Determined?

One of the EB-5 investment program’s requirements is the creation of a minimum of 10 full-time jobs for qualifying U.S. workers. EB-5 investors who invest directly in a project must show the creation of at least 10 jobs from either construction jobs that have lasted at least two years or jobs on the NCE’s direct payroll. This requirement can be difficult to satisfy if a project defaults and is not completed.

Regional center investors, however, may count both indirect and induced jobs. These jobs are determined using an economic analysis of how the NCE’s spending and operations have impacted the local economy. Even if a project is incomplete, it can still fulfill job creation requirements, potentially allowing the involved EB-5 investors to maintain their eligibility for U.S. permanent residency despite the project defaulting.

If the NCE cannot show sufficient job creation for all of its investors, it must discuss with a third-party purchaser or the project owner to decide whether the project can continue as planned and whether the projected jobs can still be created. If the answers to both questions are yes, the NCE may suffer financial loss but still protect its EB-5 investors’ eligibility for U.S. green cards.

If an NCE discovers that the project it has invested in may default, it should immediately attempt to obtain the necessary documentation for job creation. If a foreclosure sale is held by a higher-up lender, the NCE may forfeit its rights to such documents.

How Can EB-5 Investors Navigate Material Changes Due to Foreclosure Sales?

If an EB-5 project that has not created enough jobs to satisfy the needs of its EB-5 investment participants is sold in a foreclosure sale, the EB-5 investors can find themselves in a precarious situation. Even if the entity is sufficiently revamped such that it undergoes a “material change” for United States Citizenship and Immigration Services (USCIS) purposes, the EB5 investment participants may still earn their immigration benefits. However, it is unlikely that the entity will have sufficient funding to make more EB-5 investments in the new project unless the NCE was repaid with excess capital derived from the foreclosure sale.

If the NCE carefully plans with the project owner, it may be possible for the NCE to preserve the job-creating ability of the original entity and avoid investing more capital. This would be the NCE’s best possible move in such a scenario, as soliciting additional EB-5 investment could prove tricky or even impossible.

If enough jobs have been created to satisfy the EB-5 investment program’s job creation requirement, an EB-5 investor may receive their U.S. permanent residency status even in the case of a default. USCIS has issued I-829 petition approval before to investors whose EB-5 projects have failed and been left incomplete, so EB-5 investors should not give up hope even if their project shows signs of defaulting.