What are the risks of investing in a regional center project with no escrow agreement?

Escrow is not required by any EB-5 law, rule, regulation or policy. When processing times were short (several weeks or a few months), escrow was used to hold funds until approval of the I-526, allowing for an easy return of funds in the event of a petition denial. Now, funds are held in escrow until I-526 filing in most cases, and some projects forego escrow entirely because funds are needed quickly. Have an immigration attorney review project documents for the uses of funds procedures and how to exit the investment.

The risks are the same as any other time you decide to bypass escrow and invest directly into any project: your funds can generally be used immediately by the project and you have limited right to refund if you change your mind. Any escrow arrangement is provided to help protect the investor''s interest, not the project. Although it provides less protection nowadays because of liberal release provisions, most still won''t release your funds until you''ve at least filed your I-526 (thus giving you the ability to withdraw funds if you decide to not move forward with your I-526 for any reason). Thus, before investing with no escrow, it is best to carefully consider if you are fully committed to both the project and the EB-5 process.

Escrow is not required, but you should consult a due diligence specialist and conduct due diligence on the regional center and on the project before you invest. If the regional center has a long-standing history of successfully completing projects and a high percentage of I-526 and I-829 approvals, then you are probably okay to invest.

Many reputable regional center projects no longer utilize holding funds in escrow accounts until the I-526 form is approved due to the tremendously lengthy delays with I-526 processing times.

Escrow account provision has its advantages but that is not the end of the story.

By operational procedures, most escrow accounts are administered by a third party who works for both the investors and the developers/regional centers who are supposed to receive and spend the investment funds. It is advisable that an agreement should contain a provision for an escrow account managed by one such third party. An investor should insist on it because so many negative things can happen to a petition.

For example, if a petition is denied by the USCIS, a good agreement would have promised that the investor''s money (which should be in an escrow account) would be returned to the investor in such a circumstance. A failure to have an escrow account provision in an agreement does not mean an investor would necessarily lose his or her money. However, an escrow account would provide peace of mind for the investor. There have been cases where investors cannot easily retrieve their funds in time if their petitions were rejected because there was no escrow account administered by a third party, which could have simply returned the money. This particular situation had to resort to litigation.

Besides rejection, there have been instances where entire ventures/projects had been found to be fraudulent and shut down by the government. Escrow accounts ensured that these funds were available and returned to the investors in the nick of time.

Advisably, consult an attorney. He or she can review agreements to determine if your interests as investors are best protected, regardless of whether or not those agreements contain escrow account provision. There have been circumstances where the exit provision of an agreement offered enough protection to investors without escrow account provision, but the nature of this particular agreement played a significant role on whether or not investors received all their money.

Run. Run away from this project and run fast. Escrow is employed in virtually all legitimate EB-5 projects for one reason - to have at least some semblance of control of when, where and why investor funds are disbursed. Without any such escrow arrangement in place, your funds are easy prey for misappropriation as they would more likely than not be able to simply withdraw your money at will. The idea that regional centers acting as financing platforms are the only ones that need escrow accounts is absolutely ridiculous. Find a project with escrow mechanisms in place. It is the least anyone in the EB-5 industry can do with your money. And if your money or that of someone you know is already in this project, get it out now.

I think the risk depends upon the regional center and the project. As you say, this particular EB-5 project is being developed by a long-established, successful regional center. It is quite understandable today why the projects want to avoid an escrow agreement; while it protects the investor, it also makes it very difficult time-wise, given the significant backlog in adjudicating EB-5 petitions on Form I-526, for the project to benefit from the funds. Thus, I think the more important question is whether or not it is a solid project and regional center.

Usually the holding of funds in escrow is a way to give you some "guarantee" of return of funds if something unexpected occurs between the time you provide the funds and, depending on the agreed terms, either before the I-526 is filed, or I-526 approval. If the funds are immediately used/provided to the project, return of funds would be much more complicated/delayed.

It is correct that escrow is not required. It appears USCIS likes no escrow as the money is clearly put at risk immediately. The danger, of course, is if the project fails. The ideal escrow is one where the money is released only in accordance with the percentage or stage of completion. However, if the regional center and the developer have solid track records, and the project can be completed even without EB-5 funds, then it will likely work out okay.

Not really. Most projects now require 100 percent release upon I-526 filing, so escrow nowadays is primarily a marketing tool. The important thing is to look to the PPM for the I-526 denial refund mechanism.

EB-5 is project-based. Therefore a long-standing regional center is important, but the particular project is paramount. You should work with a registered broker-dealer to do full due diligence before you invest.