EB-5 Regional Centers in Project Finance: Using EB-5 Capital in lieu of Mezzanine Financing

By Wassem M. Amin, Esq., MBA

The EB-5 program — which was created in 1990 but has grown in popularity only over the past few years — allows overseas investors to obtain a green card in exchange for providing a minimum of $500,000 in financing for qualified projects.  The explosive growth of the EB-5 program has caught the attention of real estate and project developers nationwide.  Developers have been using the program to establish so-called EB-5 Regional Centers, which are essentially entities, approved by the United States Citizenship and Immigration Service (“USCIS”) that allow a developer to raise capital from foreign immigrant investors for a specific project or projects.  The total capital raised per project has ranged from $1,000,000 to over $300,000,000.  As the use of EB-5 Regional Centers has expanded, the structure of EB-5 Regional Centers and underlying investments has also increased in complexity–which has allowed EB-5 capital to be used in increasingly diverse types of projects.

Of course, at the outset, it is critical to ensure that any contemplated EB-5 financing meet the stringent requirements set out by USCIS for the program.  The details of the program, and the differences between EB-5 financing through a Regional Center, are discussed in prior posts, here and here (each post includes downloadable PDFs, as well).

EB-5 Financing as an Alternative to Real Estate Mezzanine Capital

A potential, and increasingly popular, use of EB-5 funds in Real Estate finance is as a source of capital in lieu of traditional mezzanine loans.  In the context of real estate finance, mezzanine loans are typically used by developers as a source of supplementary financing for development projects.  Unlike a traditional mortgage, real estate mezzanine loans are collateralized by equity (such as stock or other ownership interest) in the development company rather than the property itself.  To account for the higher risk, lenders of mezzanine capital typically charge interest rates and fees that range between 12-20%, a substantial cost for the developer.

This is where EB-5 financing shines –  EB-5 cost of capital is one of the primary reasons the program has become very popular with developers.  EB-5 financing, whether structured in a debt or equity model (more on EB-5 financing structures, here), typically cost around 1-2%.  For example, in a debt model, an EB-5 loan from the foreign investor would carry an interest rate of 1%–significantly lower than traditional mortgage-backed loans, and exponentially lower than the cost of mezzanine financing.

EB-5 Financing as an Alternative to Mezzanine Capital in Leveraged Buyouts

In a leveraged buyout (“LBO”), mezzanine capital may be used in conjunction with other forms of financing and equity as part of the capital stack to fund the purchase price of a company being acquired.  In LBOs, Private Equity firms or an acquiring company often use mezzanine capital to lower the amount of capital invested.  Since Private Equity firms typically have higher target rates of returns than a mezzanine lender, use of mezzanine loans may increase the rate of return on an investment.  EB-5 Financing in the context of LBOs could replace the mezzanine loan in a capital stack and significantly enhance the rate of return on an investment or acquisition.  For example, in an LBO, if the capital stack of a purchase includes $50 million in mezzanine financing, at a cost of 15% to the borrower, using a simple interest rate calculation, the cost of capital to the purchaser is at least $7.5 million.  The significant cost of a mezzanine loan may have the effect of not only reducing the value of an LBO target, but also greatly diminishing the rate of return on an investment.

As in Real Estate finance, use of EB-5 capital in an LBO can have significant advantages.  For example, in the above scenario, if the LBO uses EB-5 capital in lieu of its mezzanine financing, the cost of capital would be around 1-2%, or between $500,000 to $1,000,000 in a $50 million capital raise–that is a savings of over $6,500,000.  In other words, using EB-5 capital just increased the return on the investment by an additional $6,500,000!

Making EB-5 Financing Work: Bridge Loans

Assuming the underlying project meets the requirements of the EB-5 program, many project developers or companies are still reluctant to use EB-5 financing simply because of the length of USCIS processing times.  Although USCIS has made significant strides over the past few years to address that issue, the fact remains that structuring an EB-5 financing takes a significant amount of time.  It may take anywhere from 6 months to 2 years before a developer is able to have funds from an EB-5 financing at its disposal.  The delay in access to these funds can prove fatal to a project.

However, the growth in EB-5 financing market has the creation of spurred specialized loan companies that address this very issue.  There are now several companies that provide specialized EB-5 bridge loans which allow a developer access to all or some of its anticipated capital.  Moreover, in its latest Policy Memorandum, USCIS has specifically indicated that such financial arrangements are allowed in the EB-5 context.  In a May 20, 2013 Adjudications Policy Memorandum, USCIS stated:

“It is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation [arguably the main requirement of the EB-5 program] under the regulations….Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.”

The increasing popularity and exponential growth of the EB-5 market has expanded the possibilities in which EB-5 capital can be used.  More than ever before, EB-5 capital can be used in a variety of flexible financing structures to fund increasingly diverse projects.  The key to successfully raising EB-5 capital is proper planning with the assistance of attorneys and professionals who, not only have expertise in Securities, Corporate, Immigration and, if applicable, Real Estate Law, but are also well-versed in the unique requirements the EB-5 program.  Finally, proper and extensive due diligence and risk analysis on the underlying project and the overall financing should also be completed contemporaneously.

If you would like more information about the EB-5 Visa or Regional Center development and investment offerings, please contact Wassem M. Amin, Esq., at wassem@aminconsultingllc.com.

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Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA, a Managing Director of Amin Consulting LLC and is the Vice Chairman of the Middle East Division as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers.  For more information, please visit the About Us page or request more information on our Contact Us page.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Investor Immigration in the USA: The EB-5 Visa Professional’s Guide

EB-5 Dhar Law LLP

An Attorney and Service Provider’s Overview of Requirements for Eligibility and Implications under Different Areas of the Law

By: Wassem Amin, Esq., M.B.A.[1]

[NOTE: The following is a preview of a forthcoming Article on the same topic.]

Click Here for the Full Article in PDF Format.

In 1990, the United States Congress created the employment-based fifth preference (“EB-5”) immigrant visa category for immigrants who invest in and manage U.S. commercial enterprises that benefit the U.S. economy and create jobs. Allotted 10,000 immigrant visas annually, the EB-5 immigrant visa was designed to attract foreign direct investment into projects that would directly impact the economy (i.e., not merely passive investments).

Immigrant investors can apply for an EB-5 visa through two primary routes. The first route is through a direct investment into a qualifying “new commercial enterprise.” The second is through the Regional Center Pilot Program. Created by Congress in 1992, and recently extended by President Obama in the fall of 2012 an additional three years, the Pilot Program allows the United States Citizenship and Immigration Service (“USCIS”) to designate so-called Regional Centers to function as conduits or administrators of large or medium scale projects funded, at least in part, by EB-5 investors.

However, due to inconsistent administration by USCIS primarily caused by lack of proper training for its adjudicators, the Regional Center Pilot Program—as well as the EB-5 visa overall—was relatively under-utilized by practitioners, investors, and developers. For example, in Fiscal Year 2007, USCIS approved only 11 Regional Centers and issued 473 EB-5 Visas—out of the 10,000 available under the quota. In the following years, however, EB-5 visa issuances and Regional Center approvals exponentially increased in number. In FY 2012, EB-5 visas are projected to reach the visa cap for the first time in the program’s history.[2] Furthermore, Regional Center approvals in the same period spiked to an all-time high of 209. The increased interest in EB-5 investments has been attributed to a combination of factors including: (1) the overhaul of the program by USCIS and the creation of a dedicated EB-5 adjudication department; (2) the decrease in domestic investment capital after the 2008 recession; and (3) the increased political instability in foreign countries leading many high-net worth immigrants to relocate to the United States.

Forecasts for FY 2013 estimate that EB-5 capital will account for over $2 Billion in foreign direct investment. Since 2005, the program has injected over $6 billion in capital to the U.S. economy and added over 95,000 U.S. jobs. There have been many EB-5 and Regional Center success stories.

A particularly notable example is the Vermont EB-5 Regional Center. The Vermont EB-5 Regional Center is the only USCIS-designated Regional Center in the United States that is owned, controlled, and supervised directly by a state government. In fact, as Brent Raymond—who is the Director of the Regional Center as well as International Trade and Foreign Investment for the state—noted, the Vermont Regional Center has had a 100% success rate with immigration filings for affiliated alien investors and with investment returns on individual projects.

Advocacy groups have also had a strong positive impact in promoting the EB-5 Visa. The Association to Invest in the USA (“IIUSA”) is non-profit trade association that lobbies on behalf of Regional Centers nationwide. Led by Director Peter Joseph, it was founded in 2005 and represents over 80 Regional Centers, accounting for approximately 95% of all EB-5 capital.

Unfortunately, due to the growing popularity of the program, unscrupulous individuals and entities in the United States, as well as so-called “visa consultants” abroad, have attempted to use the EB-5 visa to defraud foreign investors. Foreign investors need to be diligent in their research and vetting process of such projects. Not surprisingly, counsel for the foreign investor or a Regional Center usually plays an integral role in this process. Unlike a traditional private offering, however, an attorney advising on an EB-5 visa, whether on behalf of the alien investor or the investment soliciting funds, needs to be well-versed in, not only also immigration law, but also corporate law, securities laws and regulations, tax law, international law, real estate law, and estate-planning—in addition to a fundamental understanding of business and economic forecasting models. It is a unique intersection of several areas of the law–each with their own complex regulatory and statutory regime.

Click Here for the Full Article in PDF Format.


[1] Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem currently focuses his practice on Corporate Law, Business Immigration Law, and International Business Transactions; where he works with Firm Partners Vilas S. Dhar and Vikas Dhar to advise Regional Centers and individual investors on EB-5 Visa matters. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.

[2] USCIS EB-5 Statistics for Fiscal Years 2005-2012 (3rd Quarter), USCIS Office of Performance and Quality (OPQ), Data Analysis and Reporting Branch (July 23, 2012).

The EB-5 Immigrant Investor Program – U.S. Permanent Residency for Foreign Investors

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By: Wassem M. Amin

Overview of the EB-5 Program

Recently extended by President Obama, the Eb-5 Immigrant Investor Pilot Program provides a pathway to U.S. citizenship for foreign nationals by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. Workers.  The program is administered by the United States Citizenship and Immigration Services (“USCIS”) and provides that foreign nationals may qualify to obtain a green card if the individuals invest $1,000,000 (or at least $500,000 in a “Targeted Employment Area”-i.e., a high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.

Under the EB-5 Program, a project developer may apply to be designated as a “Regional Center” by the USCIS.  If approved, this allows the developer to raise capital from foreign nationals while at the same time enabling the foreign investors to obtain permanent residency.  The benefit to the developer, or Regional Center, is usually minimal cost of capital (ROI on these projects are usually negligible) and the ability to charge the investor an “administrative fee.”  Most Regional Center investments are structured as Limited Partnerships, where the investor is sold a limited partnership interest and the developer is the general partner.

Below is an outline of the USCIS requirements for a foreign investor to qualify for an EB-5 visa, followed by a list of typical offering documents which I have seen from Regional Centers.

EB-5 Eligibility (Qualification of Foreign Investor)

The EB-5 employment-based immigrant visa is designated for foreign investors in new commercial enterprises.  There are 10,000 annual visas in this category (this quota has never been met).  This category covers two major types of investors: (1) those who invest in targeted employment areas ; and (2) those who invest anywhere else .  A targeted employment area is defined as (1) a rural area; or (2) any area experiencing high unemployment of at least 150% of the national average rate.

Criteria for Qualification:

  • Investment of at least $500,000 (if in a targeted employment area) or $1,000,000 if any other area;
  • Required capital must be placed “at risk” for the purpose of generating a return on the capital (Actual commitment of the capital is required);
  • The enterprise must create full time employment for not less than 10 U.S. workers (includes citizens and permanent residents, but not immediate family members of the investor);
  • Investment must be in a “new commercial enterprise,” defined as: (1) creating an original business; (2) by buying and reorganizing an existing business; OR (3) investing in an existing “troubled business”, created after November 29, 1990, if the capital infusion will result in, at least 40% increase in net worth or number of employees;
  • Capital must be obtained through lawful means; and
  • Investor must be engaged in the management of the enterprise, through either day to day management or policy formulation (inapplicable if through a Regional Center).

Immigration Filing Requirements:

Amount of Capital Invested – To show that the petitioner is in the process of investing $1million or $500,000 (targeted area), petition must be accompanied with:

  • Bank Statements showing amounts deposited in the United States business accounts for the enterprise (or held in an irrevocable escrow account);
  • Evidence of all the assets purchased in the United States;
  • Evidence of all property transferred from abroad for use in the US enterprise, including applicable commercial entry documents and fair market valuations; or
  • Evidence of Monies transferred to the new commercial enterprise in exchange for shares of stock (voting or nonvoting, common or preferred) or convertible debentures.

Lawful Means Evidence – to prove the investor’s funds are derived from a lawful source, the investor must show evidence such as:

  • Foreign business registration records;
  • Corporate, Partnership, and personal tax returns;
  • Evidence identifying any other source of capital; OR
  • Certified copies of judgments or evidence of all pending civil or criminal actions involving monetary judgments against the petitioner.

Job Creation Evidence Required – to show that the new commercial enterprise will create not less than 10 full time positions for qualifying employees, the petition must be accompanied by:

    1. Documentation consisting of photocopies of Form I-9, tax records, or other similar documents for 10 employees (if already hired); OR
    2. A Copy of a comprehensive business plan showing that, due to the nature and projected size of the new commercial enterprise, the need for not fewer than 10 employees will result, including approximate dates, within the next two years, when such employees will be hired.

Management – Evidence that a petitioner is or will be engaged in management (day to day or policy formulation), the petition must be accompanied by:

    1. A statement of the position title that the petitioner has or will have in the new enterprise, and a complete description of his duties;
    2. Evidence that the petitioner is a corporate officer or holds a seat on a corporate board of directors; OR
    3. If the new entity is a partnership, evidence that the petitioner is involved in management or policy-making.

Targeted Employment Area

    1. Evidence that the metropolitan statistical area, a specific county within such an area, or a county in which a city or town with a population of 20,000 or more is located, has experienced an average unemployment rate of 150% of the national average rate; or
    2. A letter from an authorized body of the government or political subdivision of the metro statistical area, or of the city or town with a population of 20,000 or more in which the enterprise is principally doing business, has been designated a high unemployment area.

Typical EB-5 Regional Center Offering Documents:

  • Project Summary Sheet
  • Memorandum of Terms (Term Sheet)
  • Private Placement Memorandum
  • Partnership Agreement
  • Subscription Agreement
  • Targeted Employment Area Designation
  • Business Plan(s)
  • Approved Economic Impact Report
  • Escrow Agreements for Subscription Fees & Capital Contribution
  • Completion or Performance Bond
  • Payment Bonds
  • USCIS Regional Center Approval Letter
  • Investor Qualification Questionnaire
  • Brochure(s) and other marketing material

Disclaimer: This article is for informational purposes only and it is not intended as legal advice.  Their are many other factors that may impact an applicant’s eligibility.  Consultation with a knowledgeable Immigration and Corporate Attorney is important.  For more information, please contact Wassem M. Amin.

Commercial Fraud is a Two Way Street – Middle East Companies Increasingly Fall Victim To Sophisticated U.S. Scams

online-fraud-scammer419By: Wassem M. Amin, Esq.

A recent disturbing trend that I have witnessed in my practice is the rising occurrences of fraud perpetuated upon Middle East businesses via sophisticated schemes in the United States.  Most, if not all, cases take place within the context of a sales agreement where a fictitious American supplier targets Middle Eastern import/export firm.  Sophisticated scams often involve official-looking documents, such as bills of lading, fake certificates of origins, and even letters of credit.  Most correspondence between the parties is done via email and the parties rarely meet in person.  In particularly sophisticated cases, the scam artist in the U.S. even invites a representative to meet at the American Company’s “headquarters,”–which turns out to be an office suite rented for the day.

After the purported agreement is reached, the purported supplier urges the Middle Eastern company to wire funds prior to shipment of the agreed-upon goods.  This is usually accompanied by fictitious emails from a fake freight or shipping agent to reassure the buyer of shipment.  Of course, once the buyer wires the money, they never hear from any of the parties again.  I have seen losses that range from a few thousand dollars to millions of dollars.

Middle Eastern companies are particularly susceptible to fraud by US scam artists due to several misconceived notions.  First and foremost, they believe that a US company cannot be fraudulent due to erroneous misconceptions about the U.S. laws and regulations.  Second, most commercial business transactions in the Middle East are very informal and do not involve extensive legal documentation.  They rarely ever involve legal counsel.  Therefore, most Middle Eastern buyers are unfamiliar with the requirements of any agreements and how to conduct due diligence to properly vet a potential supplier.

A Middle Eastern company can reduce the risk of such fraudulent transactions in several different ways.  First, it is always advisable to seek the professional counsel of an International Transactions Attorney or Business Consultant, particularly one who is familiar with the Middle East.  The expense incurred may protect against exponentially larger losses.  Second, international buyers should insist on using a Letter of Credit as the method of payment–especially if the parties do not have any prior transactional history.  A Letter of Credit will work as a safeguard to ensure that goods are shipped prior to the release of funds.  Third, international buyers should conduct their own extensive due diligence to ensure that the supplier or seller is a reputable company.  That may include steps such as retrieving the company’s corporate/business registration records, asking the company for prior buyers’ contact information as references, and search with local and national Better Business Bureaus to uncover customer complaints.

The extent of protective measures, of course, depends on the size and complexity of the transaction involved.  The bottom line is that once a buyer is defrauded, it is very difficult to recover the losses.  Consulting an international transactions attorney or consultant is an important investment for any party – whether a US supplier OR a international buyer.  As always, caveat emptor.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin is an Associate Attorney at Dhar Law LLP in Boston, MA.  Wassem has extensive experience in the Middle Eastern region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or http://www.dharlawllp.com. 

US Citizenship Through Islamic Finance Compliant Investments: The EB-5 Investor Visa Program

By: Wassem M. Amin, Esq.

ImageThe United States is one of the largest recipients of foreign direct investment from the Middle East, particularly from Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates.  Despite the economic recession, investors from these countries continue to diversify within the U.S. financial and real estate markets.

Unbeknownst to many foreign investors, however, is that a collateral, or perhaps primary, benefit of investing in the United States may be the ability to obtain permanent residency and eventual citizenship.  A foreign investor who makes a qualifying investment can apply to obtain a green card (permanent resident card) and, eventually, United States citizenship if they meet all the criteria of the EB-5 immigrant visa program.

However, a challenge for many Middle Eastern investors is the ability to procure an EB-5 qualifying investment that will also adhere to the principles of Islamic Finance.  There are several methods to structure an EB-5 investment to be Islamic-finance compliant, one of which is discussed in this post.

The EB-5 Program

The United States Congress created the employment-based EB-5 immigrant visa category in 1990 for immigrants who invest in and manage U.S. commercial enterprises that benefit the economy.  To qualify, investments must create at least 10 full time jobs for U.S. workers.  The minimum investment required is $1 million, although that amount is reduced to $500,000 if the investment is made in a high unemployment area or a qualifying rural area.  Immigrant investors who successfully qualify would obtain a permanent resident card with the opportunity to apply for citizenship after 2 years.

In 1992, to stimulate interest, Congress enacted the EB-5 Regional Center Pilot Program.  The program allowed public and private entities to apply to the United States Citizenship and Immigration Services (“USCIS”) to be designated as a regional center.  The regional center would, in turn, develop qualifying investments for foreign investors under the EB-5 program.  Regional centers provide a structure for focusing foreign investment in a specific U.S. geographic area and for promoting economic growth in such area through increased export sales, creation of new jobs, and increased domestic capital investment.  For an immigrant investor, the benefits of investing through a regional center are numerous.  Typically, a regional center investment has already been evaluated for feasibility.  Similarly to a real estate developer who is raising capital, a regional center would already have prepared business plans, private placement memorandums, feasibility studies, and other offering documents.  In the case of an EB-5 investment, the regional center would have also completed economic impact studies to demonstrate to USCIS that it meets the job-creation criterion. In addition, most regional centers hold an immigrant investor’s funds in an escrow account pending USCIS approval of the investor’s EB-5 application.   Therefore, if the application is denied for any reason, the investor recovers his or her principal investment.

Most Regional Center investments are in large real estate development projects.  For example, a recent example of a regional center I have advised was structured as a partnership to invest in the expansion of an established ski resort in the state of New Hampshire.  The partnership was structured as a limited partnership, with the foreign investors designated as the limited partners and the real estate developer as the general partner.  Such a partnership can also comply with Islamic finance principles, subject to the requirements discussed below.

Structuring the Investment to be Islamic Finance (Shari’a) Compliant

Islamic Finance products and instruments set out to achieve the same business goals as conventional finance products and instruments, but within the constraints of Islamic rulings.  Islamic-compliant financial solutions range from profit-and-loss sharing mechanisms, consumer finance, trade finance, working capital finance, and project finance.  Broadly speaking, Islamic finance prohibits excessive risk or speculative investments and the payment or receipt of interest.  In addition, risks in any transaction must be shared between the parties, so that the provider of capital (investor) and the entrepreneur share the business risk in return for a share in the profits.

A Regional Center may qualify as an Islamic-finance compliant investment by structuring the entity as a partnership.  A permissible method of Islamic financing is a musharaka, which, in Arabic, literally means “sharing.”  A musharaka is a joint enterprise formed for a business purpose in which all partners share profits according to a predetermined ratio.  However, the key difference is that losses must be divided exactly in accordance with the pro rata share of capital invested by each partner.  In the context of real estate and project financing, the foreign investor, as a limited partner, would contribute capital while the real estate developer, as the general partner, would contribute either real estate assets or additional capital.

To ensure compliance with Islamic finance principles, the agreement between the partners would need to describe the capital contributions and the allocation of profits and losses, as well as the management responsibilities (which would normally be undertaken by the real estate developer as general partner).  The real estate developer would then undertake the project using the capital and other contributed assets in the construction and operation of the project.

Disclaimer: This article is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. This article does not constitute investment advice or counsel or solicitation for investment in any security.  These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.