“Zhang and Hagiwara filed and won a lawsuit against USCIS after being rejected from the EB-5 program, leading to USCIS having to reshape its guidelines regarding loans for EB-5 investments.”
USCIS has maintained strict guidelines for the EB-5 investment funds. One of these guidelines requires that investors prove their loans were secured by personal assets. The Zhang v. USCIS case is reshaping the guidelines for EB-5 investments. These changes may create more opportunities for EB-5 investors, especially those who are struggling to meet the minimum investment amount requirement.
The case went all the way back to 2013 when Zhang and Hagiwara invested $500,000 USD each into a NCE. The funds were borrowed from their own businesses. The investors have planned to meet the EB-5 eligibility requirements.
However in 2015, USCIS adopted a new policy that focuses on “cash” and “indebtedness” in the approval of EB-5 investment funds. USCIS determined that cash results from loan (garnered through a third party) is indebtedness. This would then require collateralization through investor-own assets. In other words, Zhang and Hagiwara’s petitions were denied because their investment was from uncollateralized loans. This led to Zhang and Hagiwara deciding to file a lawsuit against the USCIS.
The filing first went to a district court in November 2018, and Zhang won the case then. However, USCIS filed for an appeal and the case then transferred to the District of Columbia U.S. Court of Appeals.
In 2020, Zhang won the case once again and the Court ruled that USCIS had wrongly impose collateralization demands on loans EB-5 investment. USCIS’s interpretation had violated the plain meaning of EB-5 regulations. The court explained that cash is fungible and it passed from buyers to sellers, without imposing any buyer’s obligations to his own creditors to the seller.
It was determined that loan proceeds are “cash” and qualify as capital. Uncollateralized loans could be a legitimate source of funds for EB-5 investments. This is a victory for EB-5 investors. And this established an important precedent for EB-5 investors.
USCIS approved Zhang’s petition on April 14, 2021. Although unsecured loans in EB-5 is still unclear, the ruling suggests that these types of loans may eventually become eligible for regular use in EB-5 investment. Investors who are considering this option should consult with a lawyer before investing in an NCE, considering that the majority of the USCIS guidelines for EB-5 still remain in effective for all investors.