The EB-5 Rush: Consequences of Skeletal Filings

05 Aug The EB-5 Rush: Consequences of Skeletal Filings

By Rebecca S. Singh, Esq.

 

Here we go again! Over the past four years, the EB-5 community has been on a rollercoaster ride with looming regulatory or legislative changes to the program.  Investors, developers, and lawyers went into panic mode in 2015 when it seemed imminent that the investment amount would increase and changes to the Targeted Employment Areas (TEA) would drastically change project locations.  As the extensions through continuing resolutions began to be commonplace, the wolfish cries of change become less alarming, and an apathy descended. Investors and the EB-5 community no longer took the deadlines seriously. As a consequence, many will not be ready when the USCIS regulatory changes take effect on November 21, 2019. [1] As the countdown begins, it is prudent that investors be aware of the danger associated with filing incomplete or “skeletal” I-526 petitions.

 

What are Skeletal Filings?

EB-5 petitioners are always required to establish eligibility at the time of filing, meaning that petitions must be approvable upon filing.  A placeholder or skeletal petition is one filed with the bare minimum of evidence, a common occurrence before a deadline.  In the rush to meet the deadlines in September and December 2015, many EB-5 petitioners filed incomplete petitions, or even worse, filed the petition with only the I-526 form.  No other supporting documents were attached to evidence the lawful sources of funds and the actual investment committed to the project.  In the haste of rush filings came greater consequences.

 

Consequences of the 2015 Skeletal Filings

 

The mad rush of September 2015 saw a massive amount of skeletal filings. As a direct result, there were adjudication delays and a New Policy Memo from USCIS:

 

  1. Adjudication Delays

During an EB-5 Conference hosted by MSA Global in conjunction with the Steven L. Newman Real Estate Institute at Baruch College in November 2017, the USCIS Immigrant Investor Program Office (IPO) stressed  that the effect of shabby, incomplete petitions unnecessarily increased the adjudication times for all petitions.  According to USCIS’ Senior Advisor for Economics, Jan Lyons, there was a surge of applications and petitions filed in advance of the December 2015 sunset date. The combination of the sheer volume and poor quality of petitions filed has delayed processing times.  As a result, adjudicators had to generate lengthy Requests for Evidence (“RFEs”) or Notices of Intent to Deny (“NOIDs”), in addition to reviewing the responses and additional supporting documents submitted by the petitioners thereafter in response to the RFE or NOID.  This spiraled into USCIS publishing the following Policy Memorandum.

 

  1. New Policy Memo – Outright Denials

In July 2018, USCIS brought out a New Policy Memorandum with a draconian measure for skeletal filings—outright denial.  USCIS were very clear in their guidance that placeholder petitions will no longer be allowed. As of September 11, 2018, USCIS adjudicators now have full discretion to deny any applications, petitions, and requests, without first issuing an RFE or NOID, if all required initial evidence is not submitted.  The Service’s previous practice was to issue an RFE or a NOID to the petitioner if additional evidence is required to help the Service decide whether to approve or deny the petition. Petitioners are then given a period of time to respond to the RFE or NOID, after receipt of which, USCIS will decide the matter based on both the evidence produced in the original petition and the RFE or NOID response. See MSA Global’s article “EB-5 Petitions Will be Affected by the Latest USCIS Policy Guidance”[2].  Outright denials can significantly affect the investor’s entrance into the United States and the investor’s family members included in the initial petition.

 

Partial payments, Priority Date Retention – Backlogs, Age-Outs & More

 

EB-5 practitioners were disappointed in what was not added to the  new USCIS EB-5 regulations, effective November 21. What was welcome was the ability of EB-5 petitioners to retain their priority date under certain circumstances, which includes fraud and misrepresentation to the investor or material change.  If denied, this would allow investor to refile the petition, but retaining the priority date of the initial filing.  However, this does not include misrepresentation by the investor or any other ineligibility issues, such as denials based on failure to establish the lawfulness of the source of funds or lack of documentation.

 

Although an investor can be grandfathered under the $500,000 investment amount and the current TEA definition if filed prior to November 21, a denied petition on source of funds would mean that an investor has lost their place in the waiting line and would be subject to the higher minimum amount if the case was refiled.  The priority date will not be retained.  In addition, investors born in countries with current backlogs (China, Vietnam, India) will be pushed further behind, with a new priority date. Further, children may be aged out if turn 21 prior to the refiling of the petition. Disappointingly, the regulations failed to grant relief to age-out children.

 

Running out of time…should I file with a partial amount?

There have been mixed reviews from practitioners here. Previously, investors investing less than $500,000 have relied upon language relating to being in the process of actively investing. Certainly, it is always advisable to err on the side of caution and to avoid this route. However, if partial investment is the only route, then it is advisable to invest a significant amount and detail where the remaining capital will emanate from, detailing as much information as possible, along with a pledge/commitment by the investor to pay within a specified period of  time. It is suggested not to rely upon USCIS delays in processing times or for a RFE (that may never come) before investing the remaining capital.

 

Conclusion

Given the short timeframe, it is inevitable that investors will rush to file their EB-5 petitions quickly, but one should understand the implications of filing a skeletal, incomplete, or placeholder petition that is not approvable upon filing. The policy memo might serve as a good reminder of the importance of engaging an experienced and vigilant attorney with the expertise to ensure that all necessary requirements are met at the time of filing.

 

[1] Please read MSA Global’s article “It’s Official…EB-5 Regulations Will be Published July 24, 2019”[1] and listen to the podcast “It’s Official…New EB-5 Regulations Finally Published”[1] for further discussions on the new USCIS regulations.

[2] http://mshahlaw.com/eb-5-petitions-will-affected-latest-uscis-policy-guidance/

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