Fraud Warning On U.S. Investor Visa Program

The federal Immigrant Investor Program, known as the EB-5 visa program, which allows foreign nationals to obtain green cards in exchange for investing in U.S. job-creating ventures, has emerged as an increasingly popular alternative financing source for commercial real estate projects. However, as with any highly successful financing program, the fledgling program can be vulnerable to those with criminal intent.

The U.S. Securities and Exchange Commission (SEC) and U.S. Citizenship and Immigration Services (USCIS) this week jointly issued an alert cautioning investors about potential scams in the program, and supporters and skeptics alike are calling for tighter oversight of the program.

Along with issuing a warning to potential investors, the SEC stepped up its enforcement action by bringing fraud charges against Marco and Bebe Ramirez and three companies they own for fraudulently raising and then stealing funds from foreign investors under the guise of an investment opportunity to create jobs and a path to U.S. residency.

In the complaint unsealed this past Tuesday in U.S. District Court, Southern District of Texas, the Commission alleges that the Texas couple and their companies raised at least $5 million by making false promises that investor capital would be invested as part of the EB-5 program. The SEC alleges that instead of investing the money into job-creating enterprises, the couple diverted the funds to other undisclosed businesses, for their personal use, and, in at least one case, used investor funds to make Ponzi-like payments to an existing investor. According to the complaint, the couple started by targeting investors in Mexico, and more recently solicited investors in Egypt and Nigeria.

The federal court has granted the agency’s request to freeze the assets and accounts of the Ramirezes and their companies, USA Now LLC, USA Now Energy Capital Group LP, and Now Co. Loan Services, effectively halting their ability to raise or spend funds.

"Through their investment scheme, the Ramirezes abused a program intended to attract foreign capital to create U.S. jobs," said David R. Woodcock, director of the SEC’s Fort Worth Regional Office. Efforts to reach the couple of their representatives were unsuccessful.

The SEC and the USCIS, which regulates U.S. immigration policy, also Tuesday issued a joint investor alert about the program, with the SEC taking "emergency enforcement action" to stop allegedly fraudulent securities offerings made through EB-5.

In recent weeks, Congress and FINRA have also announced investigatory actions.

A group of congress members representing the Inland Empire in California, including Reps. Ken Calvert, R-Corona; Duncan Hunter, R-Alpine; Raul Ruiz, D-Palm Desert and Mark Takano, D-Riverside, sent a letter last month to House Judiciary Committee requesting a hearing to address EB-5 loopholes and abuses. Sen. Patrick J. Leahy, D-Vt., the program's original author, has requested amendments to streamline and improve the program.

Under U.S. securities law, any individual who receives a fee or commission for connecting a developer with investors must have a broker/dealers license. The number of unlicensed individual raising capital has drawn scrutiny from the SEC and FINRA (Financial Industry Regulatory Authority).

Business owners apply to USCIS to be designated as "regional centers" under EB-5 rules offering investment opportunities in "new commercial enterprises" that may involve securities offerings. A foreign investor in a project that meets the criteria is eligible to apply for conditional lawful permanent residency.

However, the foreign investors are not guaranteed a permanent visa, and the fact that a business is designated as a regional center by USCIS does not mean that any government agency has approved or expressed a view on the quality of the investments offered by the business, according to the alert.

In the enforcement action, the SEC alleged that the accused falsely promised investors a 5% return on their investment along with an opportunity to obtain an EB-5 visa and allegedly pitched investors even before USCIS had designated the business as a regional center.

The SEC also claim the defendants told investors their money would be held in escrow until USCIS approved the business but instead spent the funds for personal uses. The end result: investors did not obtain even conditional visas as a result of their investments, according to the SEC's complaint.

"Even though investors provided the Ramirezes with at least $5 million, none of them have ever received conditional visas, let alone green cards,” said David Peavler, associate director of the SEC’s Fort Worth Regional Office. "Instead, the Ramirezes opened a restaurant and purchased other assets for themselves and their employees.”

In another case, the SEC and USCIS halted an alleged $156 million investment fraud in which an individual and his companies used false and misleading information to solicit investors in the "world's first zero carbon emission Platinum LEED certified" hotel and conference center in Chicago.

According to the complaint, the individual falsely claimed that the business had secured all building permits and that the project was backed by several major hotel chains. The defendants promised investors that they would get back any administrative fees they paid for their investments if their EB-5 visa applications were denied.

However, the defendants allegedly spent more than 90% of the administrative fees, including some for personal use, before USCIS made a decision on the visa applications.

Despite the abuses, many developers around the country are successfully using EB-5 to raise huge amounts of capital in projects ranging from a few investors to pools of 100 or more investors.

Proponents have estimated that between $3 billion and $4 billion in direct foreign investment could be raised annually as new regional centers are formed to take advantage of the innovative visa program as a source of low-cost financing and promote it to foreign investors as a valuable investment tool, said Kate Kalmykov, a Greenberg Traurig, LLP attorney with extensive experience working on EB-5 immigrant investor matters.

Like many government programs, EB-5 attracts a few bad-faith actors that can harm the reputation of everyone, Kalmykov said.

“It's important to have government and industry oversight so the program continues and remains viable, and foreign investors feel confident investing in the United States," Kalmykov said. "EB-5 is a wonderful tool because it brings foreign investment into the U.S., it's a job creation program, and offers investors a streamlined way to immigrate to the U.S. without an employer or family sponsor."

One of the weaknesses of the program is what happens after the investment funds are raised, she said.

Currently, there's no follow up by USCIS to monitor how funds are being used. Setting regular milestones for capital raisers to report back to the immigration agency on the status of a project -- along with site visits by the agency to make sure the projects actually exist as proposed -- would likely increase compliance and serve as a tool to prevent fraud, Kalmykov said.

Just last year, policymakers turned to real estate investors to rescue the housing market. Scared the foreclosure crisis would drag on for years, the Federal Reserve supported renting out foreclosed homes as a market-based solution.  Fannie Mae even experimented with selling big pools of them to buyers, although the plan never got past the pilot stage. In overwhelming numbers, investors raced to buy up foreclosed homes. Wall Street launched an industry based on buying and renting out homes in bulk, the demand pushing up home prices, in some areas even up to 20% in a year. Now, the inventory on foreclosed homes in those markets is almost gone, but investors keep buying and prices keep rising, making it harder for the average American to afford a house or qualify for a loan. Interestingly enough, all-cash purchases made up an astounding 45% of all residential sales in August, up 30% over the same period last year. A large portion of those buyers are institutional investors, backed by Wall Street money, looking to convert the homes into rentals. An institutional investor is defined as someone who has purchased at least 10 properties in a 12-month period. The invasion of cash buyers poses a challenge for the ordinary person looking to purchase a home to actually live in. Cash buyers have the advantage of bypassing the mortgage financing process. It’s tough for the average American to compete against an investor unless they are very aggressive. Although frustrating, especially for first-time homebuyers, the upswing in home prices has been a much needed relief for borrowers who are underwater. Corelogic, a residential real estate company, recently determined that 2.5 million residential properties returned to positive equity in the second quarter of 2013. The Commerce Department announced on Wednesday that the sales of new homes rose 7.9% in August, but still held at their lowest levels of the year. The data point is proof that the sharp and sudden rise in interest rates may be affecting the housing recovery.  Rates began to surge in May when the Federal Reserve hinted it would soon wrap up its bond-buying stimulus program, gradually increasing the record-low interest rates that provoked the housing boom. In a surprising move last week, the Fed shocked the markets by announcing it would delay reducing monthly bond purchases for now.

Mortgage applications for the week ending September 20th rose 5.5%, including a 6.6% gain in purchase applications and a 4.9% gain in refinance applications. The 30-year fixed rate mortgage fell from 4.75% to 4.62%. The national median sales price in August was $175,000.

Right Sale Price For Seller Is Buyer's Call

Proper pricing is critical to a timely sale in any market. Yet, some home sellers today  still want to set their price in relation to what they have paid themselves or their neighbors have sold for or/and are asking now, sometimes ignoring current market conditions and the differences between homes.

When pricing a home - especially in today's housing market - we find it's helpful for sellers to understand what governs a buyer's decision to purchase.

Here is a quick look at how buyers view price:

1. Monthly payments are usually more important to buyers than the sales price
2. The "out of pocket" cash needed at settlement / closing is a big factor with buyers
3. All buyers want to cash in on a good deal
4. Buyers have often shopped the competition and know your home compares
5. Buyers recognize value and shy away from overpriced homes
6. Buyers do not want to pay for your mistakes ( for example, you paid too much when purchased, over-improving the home, poor-quality remodeling jobs, etc.)
7. Buyers have no interest in how much money you need to realize from the sale to make your next move
8. Buyers who work with a buyer's agent mean business. They are ready to negotiate and close the deal.

Rental Incomes Continue to Outpace Other Sources of Income

The economic recession in 2009 was painful to most people. However, as wages and salaries, proprietors’ income, and income from assets (e.g., stocks, etc.) contracted that year, aggregate rental income rose as many homeowners turned into renters.

With the economy growing again, the aggregate levels for all types of income has been rising. Rental income continues to outpace all other types of income and has been growing much faster than the inflation rate, creating high positive real returns.

However, the forces of supply and demand are starting to move towards a balance, with rental income growth now decelerating. On the supply side, more rental units appear to be coming into the market as investors are reportedly converting foreclosed properties into rentals. On the demand side, foreclosures have started to ease; although the magnitude of past due and foreclosed properties is still large, having dropped from a peak of 6.7 million to 4.8 million as of Q3 2012.

The outlook is for the demand for rental properties to continue to grow substantially if current mortgage standards remain excessively stringent. Although sound credit practices are essential, most REALTORS® believe that the current lending standards have become excessively tight, even for credit-worthy borrowers.

We get a number of comments from REALTORS® in our monthly REALTORS® Confidence Index survey concerning potential first-time homebuyers who lose bids to investors because of a strong rental market. If there is any consolation, the situation shows that the existing home sales market is strong and upbeat. In this type of situation the old phrase “Try, try again.” applies. Both mortgage money and homes are “out there,” but in this market persistence may be necessary.

Rental Incomes Continue to Outpace Other Sources of Income

How to Work the Room

How to Work the Room

Don’t be overwhelmed by a networking event full of strangers. This is your chance to create new business relationships. Here are some tips for breaking the ice and making the right connections.

OK, you’ve made it to the event. Now what? Approaching complete strangers is a daunting task for many — especially when you’re an agent or broker and find that some become guarded when you mention what you do. There’s no sure thing when meeting new people because everyone is so different and we all tend to have our own agendas. Even you.

Networking is all about meeting people, getting to know them, and potentially helping them. That’s it! When looking to “work the room,” always refer back to the definition (or at least my definition) of networking: learning about and helping others.

When your objective is to learn something about other people — whether it is culture, trends, upcoming conferences, product information, related articles and publications, or further contacts — you can’t lose. Helping someone in your target market is even better. Givers always gain and favors get returned, especially when the appropriate time comes to ask for them.

Remember, you’re looking to start a relationship. Choose your attitude before arriving at the meeting. Be genuine and have fun.

Get the Conversation Rolling

Repeat after me: It’s all about them. Confidently introduce yourself and ask a series of general questions to learn more about your contact’s work, goals, and initiatives. Here are some of my favorite questions to ask people to break the ice and, more important, to get to know them.

• How did you learn of this meeting/event? (If it’s not obvious.)
• Have you been here before? If yes, what brought you back?
• Do you know a lot of people here? (If so, who?)
• What kind of work do you do? (Again, if it’s not obvious.)
• What company do you work for?
• How long have you been at it?
• Do you like what you do?
• What is it about your work you like most? Least?
• What are you looking for here?
• Do you have a target market? (If so, great! If not, why not?)
• How do you market your business?
• What does a perfect prospect look like for you? Why?
• What do you do for fun? (Sports, kids, vacation, hobbies, etc.)
• What can I do to help you? (If I like them!)

That’s my short list in no particular order. I pick and choose as appropriate and as the conversation flows. Notice how all of these questions are focused on the other person? As in, it’s all about them.

The Next Step

If there’s a good connection or the person you meet is any kind of networker, they should be asking you the same questions right back. Remember, this will almost always begin as a superficial conversation. If there is a connection, then great! If not, that’s fine, too. After a few minutes, just say, “It was nice to meet you. Let me know if I can help you with anything at the event today; otherwise, good luck and hope to see you soon.” And that’s it. Never be rude, off-putting, or curt with anyone. Keep in mind that most people (even agents and brokers) are not very good at talking to strangers. (After all, didn’t mom tell you not to do that?)

If there is a good connection and the conversation is collaborative, briefly give an overview of what you do and how you help others (if you’re asked). For instance, I would say, “I’m a seminar leader, speaker, and consultant focused on helping real estate agents create more business through networking.” Hopefully they’ll ask questions that are as good as yours!

If there is a good connection and you think you can help one another, then exchange cards and commit to following up. Put some notes on the back of the business card you collected, shake hands, and say your good-byes. If you’re really brave, ask for an introduction to someone they know at the event that you want to know or offer to do the same. Believe it or not, all this should take place in no more than six to eight minutes (without looking at your watch).

What upcoming event will you attend to try this approach and practice your networking? Grab your calendar, phone a friend, go to Google, press the buttons, and schedule it now!

 BY MICHAEL GOLDBERG
Source:   How to Work the Room