An escrow arrangement is essential to almost every EB-5 investment as it has become a marketing norm, as opposed to a legal requirement, that gives investors comfort that their investment funds will be safeguarded until certain milestones in the I-526 application process are achieved. Fundamentally, it safeguards an Investor’s EB-5 investment prior to their I-526 petition approval. Once an investor chooses a project to invest in and signs all project related documents (i.e. subscription agreement, operating agreement, escrow agreement, etc.), then the investor will deposit the appropriate investment amount into an escrow account set up by the project.
The conditions of when the investor’s money is released from escrow depend on each individual project. The three most common scenarios are delineated below:
Release of Funds is Conditional on I-526 Filing:
- In this case, the funds will remain in escrow until the EB-5 investor provides proof that the I-526 petition was filed. Once the escrow agent receives such notice, then the escrow agent releases the funds to the designated project company account pursuant to the project documents.
Release of Funds is Conditional on I-526 Approval:
- In this case, the funds will remain in escrow until the EB-5 investor provides proof that the I-526 petition was approved. Once the escrow agent receives such notice, then the escrow agent releases the funds to the designated project company account pursuant to the project documents.
Release of Funds in Stages:
- In this case, both the above scenarios are “merged” and the escrow agreement conditions the release of money in stages. Generally, a percentage of the funds are released upon I-526 petition filing, while the remaining percentage is released upon I-526 petition approval. The same procedure for both notification and release of the funds noted above will be followed for each stage.
Once an I-526 petition has been adjudicated, either approved or denied, what occurs to the funds in an escrow account will depend upon the EB-5 investor’s project documents. Generally, once an I-526 petition is approved, then all of the EB-5 Investor’s remaining funds that are held in escrow are released to the project company. If the I-526 petition is denied, then the relevant provisions of the project documents will control whether or not funds are returned to the EB-5 Investor and how the funds are reimbursed.
It is important for every EB-5 Investor to familiarize themselves with their investment’s relevant project documents in order to be cognizant of how the escrow arrangement will handle their funds throughout the process.