DVF2 FAQ
Q1: What is the OCG Debt Validation Fund II?
A: The OCG Debt Validation Fund II is a fund that focuses on accounts receivable financing, collateralized by pools of receivables. Investors share in the fund by lending money to Resolution Processing, which uses legal processes to invalidate consumer debts, especially credit card debt.
Q2: How does the fund generate returns?
A: The fund generates a 20% annualized return for investors, paid quarterly over a 36-month term. The returns come from Resolution Processing’s efforts to invalidate debt and collect payments on accounts receivables.
Q3: What is the minimum investment amount?
A: The minimum investment for OCG Debt Validation Fund II is $50,000, with an average investment around $100,000.
Q4: How is the investment collateralized?
A: The investment is collateralized by accounts receivable contracts with a UCC filing. The receivable balances are typically $6,000 with a cost of $1,500 per contract, offering a loan-to-value ratio of about 25%.
Q5: What is debt invalidation?
A: Debt invalidation is a legal process where Resolution Processing helps consumers invalidate their credit card debt. This often occurs when creditors or collection companies fail to follow the Fair Credit Practices Act or other consumer protection laws.
Q6: What is the role of Resolution Processing?
A: Resolution Processing specializes in invalidating consumer debt and manages the legal processes required to relieve clients of their debt obligations. They use funds to cover attorney retainers and administrative services needed for debt relief.
Q7: How often will I receive payments, and are they guaranteed?
A: Payments are made quarterly, with 5% paid each quarter. The returns are based on the performance of the accounts receivables, so while the structure is designed to provide steady returns, no investment can be fully guaranteed.
Q8: How are investors paid?
A: Investors are paid quarterly interest payments, starting after the first quarter of their investment. They receive 5% quarterly, which adds up to a 20% annualized return. At the end of the 36-month term, they receive a balloon payment for the full principal amount.
Q9: Is there an early payoff option?
A: Yes, although the expected term is 36 months, there is the possibility of an early payoff if Resolution Processing chooses to repay earlier due to the higher interest rate.
Q10: What is the collection ratio?
A: The historical collection ratio for these receivables is around 80%, offering significant protection due to the diversified pool of receivables.
Q11: Has a full forensic audit been conducted on Resolution Processing?
A: Conducting a full forensic audit is a massive undertaking. While we haven't done a detailed forensic audit, we have thoroughly reviewed their financials, confirmed contract purchases with attorneys, and ensured that payments are made. We also receive monthly reporting and UCC filings to maintain transparency and oversight.
Q12: How do the payments from receivables work?
A: Clients make payments on their accounts receivables, on average around $300 per month, of which $250 goes to the administrative costs, and $50 covers legal services.
Q13: How does the fund provide social impact?
A: The fund helps consumers get out of credit card debt, often reducing their balances by half or more and lowering their monthly payments. It aims to provide financial relief and stability for individuals burdened by high-interest debt.
Q14: What is the expected term of the investment?
A: The investment is structured for a 36-month term, though there may be opportunities for early repayment.
Q15: What are the benefits for large investors?
A: Investors who invest over $1 million qualify as Class A1 members and receive a 25% preferred return, while those investing under $1 million receive a 20% return as Class A2 members.
Q16: Are there any upfront fees for investors?
A: No, investors are not charged any upfront fees. The fund's legal and overhead costs are covered by charging 2% to the borrower, not the investors.
Q17: How are contracts purchased and allocated?
A: Marketing partners identify clients with $20,000 or more in credit card debt. Once clients sign up for debt resolution services and make their first two payments, the contracts are allocated to the fund and backed by UCC filings.
Q18: How is the fund diversified?
A: The fund is diversified against thousands of accounts receivable contracts, reducing risk through the size and scope of the receivables pool.
Q19: What is the investor's tax liability? Why not 1099-INT?
A: Investors receive a K-1 at the end of the year, and the income is considered interest income. We could have structured this to be 1099-INT, but that means a smaller pool would be collateralized, causing risk to be much higher as the result. With this structure as a fund, the fund’s risk and performance is distributed among all collaterals and investors, so it is much safer and diverse.
Q20: Is there depreciation for this investment?
A: There are no tax benefits like depreciation as with real estate investments. This is investing into the equity of a fund that lends money to Resolution Processing in order to perform debt invalidation, so there is no real estate asset owned by the fund to depreciate.
Q21: How can investors subscribe to the fund?
A: Investors can subscribe via the OCG Properties investment portal, where they can complete documentation and commit to their investment.
Q22: Why is UCC filing important?
A: A UCC filing (Uniform Commercial Code filing) is crucial because it establishes a public record of the lender's legal interest in a borrower's collateral, such as accounts receivable. This filing ensures that the lender has priority over other creditors in case the borrower defaults or declares bankruptcy, providing greater protection. It also prevents the borrower from selling or transferring the collateral without settling their debt. UCC filings offer transparency, allowing other potential creditors to see the lender's secured interest, and help secure the lender’s investment by legally protecting their claim on the assets. In the OCG Debt Validation Fund II, the UCC filing secures the fund's investments by ensuring that the receivables used as collateral are legally protected, reducing the risk of loss.
Q23: Do you spot check the clients when they are added to the pool?
A: We get reporting on all contracts directly from the attorney. The personal info of the client needs to be redacted because it is illegal to share their personal name and tax ID on legal contracts. But we do get this information directly from the attorneys, and we have access to them, as well as UCC filing against the contracts once they are allocated to us. We have not enacted a spot checking procedure since we got all of the contracts required sent to us, and we do see payments coming in from those clients. With the attorneys we are working with, seeing the list of contracts and data and getting the UCC filing (using a 2nd attorney) and then seeing the monthly payments coming in on those contracts as well as payments going out weekly for the purchase of new clients from the marketing partners, no foul play has been observed.
Q24: What is the risk associated with this type of investment?
A: While the fund is collateralized and based on legal processes to invalidate consumer debt, there is always the risk of lower collection rates, defaults, or changes in consumer behavior. However, the fund has a historic 80% collection ratio, mitigating risk. The margin is also very high ($1,500 cost vs $6,000 receivable), so the additional margin allows for strong risk mitigation when bundled with a large pool of contracts.
Q25: What happens if Resolution Processing defaults or goes bankrupt?
A: The UCC filing protects your investment by giving the fund a legal claim to the receivables, ensuring priority over other creditors if a default occurs.
Q26: How can I monitor the performance of my investment?
A: Investors receive regular reports on the fund's performance, including updates on receivable purchases, collections, and UCC filings. This ensures full transparency.
Q27: Why is the fund interest-only with a balloon payment at the end of the 12th quarter? Why isn’t principal being paid off until then?
A: The balloon payment allows Resolution Processing to reinvest excess money into new contracts throughout the 36-month term. This creates a snowball effect, growing the pool of contracts and increasing returns for both the investors and Resolution Processing. This also means lower risk and higher margin for the same amount of invested capital.
Q28: Has Resolution Processing's operational system been audited?
A: Yes, an audit of their operational systems, collection practices, and sign-up procedures has been conducted. They passed with flying colors, showing compliance with the law and operational efficiency.
Q29: Why are the interest payments structured quarterly instead of monthly?
A: Quarterly payments provide a more consistent and manageable schedule for both investors and Resolution Processing. Structuring the fund this way allows for efficient reinvestment of funds and ensures the capital is working to generate returns consistently.
Q30: How is the fund managing the interests between Resolution Processing and investors?
A: We align interests by ensuring that Resolution Processing is focused on the back-end profits after paying investors preferred returns. This means they prioritize successful collections and contract management, as their profits are realized after investors have received their returns. We do not make anything until investors make money.
Q31: How can I learn more or meet the Resolution Processing team?
A: We can coordinate meetings with the Resolution Processing team. Feel free to reach out for any additional information or assistance you may need.
Q32: What happens if the Fair Credit Practices Act or other consumer protection laws change?
A: Legal changes are a potential risk, but Resolution Processing works closely with legal teams and ensures compliance with current regulations. Any significant changes would be evaluated, and strategies would be adapted to continue delivering results for the fund. Legal compliance is a top priority for long-term sustainability.
Q33: What is the biggest operational challenge for Resolution Processing, and how is it addressed?
A: The primary challenge is managing the volume of contracts and ensuring timely collections. To mitigate this, Resolution Processing has established an efficient system, using in-house and state-specific attorneys to manage legal compliance and collections. Additionally, the team has operational oversight to prevent delays and ensure smooth contract handling.
Q34: What is the recourse if a marketing partner fails to deliver quality clients?
A: If a marketing partner provides clients who don’t make their initial payments, the fund has a clawback mechanism in place to recover the $1,500 marketing cost. This ensures that Resolution Processing is not burdened by non-performing contracts and maintains a high-quality pool of receivables.
Q35: What safeguards are in place if economic conditions change and consumers cannot continue making payments on their contracts?
A: The fund’s diversified pool of contracts ensures that a few payment defaults won’t heavily impact the overall performance. Furthermore, the collection process includes checks to ensure clients can meet their reduced payment obligations, which are designed to be manageable even in tougher economic conditions. The 80% historical collection ratio offers additional assurance.
Q36: Was OCG DVF I structured the same as DVF II, and how did it perform?
A: OCG Debt Validation Fund I began in May 2023 and has been performing fully but with a different structure. In DVF II, there's a 36-month term with interest-only payments and a balloon payment. DVF I had no payments for 6 months, then principal was returned from month 7-16, followed by a 30% profit in months 17-18. The new structure allows for more contracts acquisition with the same capital, increasing our collateral and extended 20% returns.
Q37: Do overhead expenses for OCG DVF II LLC come from interest income and payments to investors?
A: Yes. About 20% of the income goes to overhead costs. For example, on a $250 average payment, $50 goes to overhead, $25 to interest ($1500/contract x 20% / 12 months = $25), leaving $175 to purchase new contracts. With $5M in capital, this model allows purchasing 389 new contracts monthly. ($5M / $1500 x $175 / $1500 = 389 additional contracts)
Q38: How long will OCG DVF II operate, and why do you show a 2-year proforma for a 3-year investment?
A: The investment runs for 36 months. The 2-year proforma reflects typical contract lengths (24 months). However, reinvesting in new contracts after the first round allows for additional 24-month terms, extending returns beyond the initial investment cycle.
Q39: What happens if the LLC misses or stops paying quarterly payments, or doesn't return the initial investment?
A: If payments from Resolution Processing stop, we can take over the contracts under our UCC filing and collect directly or through a new servicing company. As explained in the math above, our funds are protected by those contracts that are producing $833k of monthly payments. After deducting 20% overhead to collect, that leaves $666k of monthly payments to pay back investors. We would not have a problem collecting 100% of investors funds back.
Q40: In the OCG DVF II Overview Doc, page 9, the proforma of $5M fund investment, total of 3,333 contract at $250 payment per month for 24 months. Is the $250 monthly payment including the $100 monthly payment to the lawyers?
A: The $250 is separate from the legal fees. The total payment to the consumer includes both the legal fee and the $250 combined.
Q41: What are the primary risks for Members of this investment?
A: The main risk is operator performance. If Resolution Processing can’t purchase contracts, we would return capital and stop the investment. That's why we invested first to ensure that they can purchase contracts. If Resolution Processing goes out of business, we would step in, but risks are minimized with the collateralized contracts and the 25% cost-to-receivable ratio.
Q42: Under what conditions would you require a Capital Call from Members?
A: A Capital Call might occur if payments from Resolution Processing stop and we need to cover legal fees to take over the contracts or engage in legal pursuit, but that would not be a significant cost. However, since there's no debt and minimal overhead, a capital call is unlikely.
Q43: Have any of your investment syndications failed to return 100% of investor capital?
A: No, all investors have always gotten their money back. Even if deals go bad, we ensure investors are protected, whether we have to step in to pay them back or not.
Q44: Have your investors ever had their capital returned without any return on investment?
A: No, we’ve never had a syndication where investors didn’t receive a return on their investment.
Q45: Have you or your investment vehicles ever been sued by investors?
A: No, we’ve never been sued, and none of my managed deals have faced lawsuits. We can provide references if you'd like to discuss with past investors.
Q46: Would Trump's proposed 10% credit card interest rate cap affect this fund if he was elected?
A: Trump's proposed 10% credit card interest rate cap could impact DVF2 but not harm its core business model, which focuses on helping consumers reduce or invalidate their debts, including high-interest credit card debt. The fund targets legal invalidation when creditors violate consumer protection laws like the Fair Credit Practices Act, with many debts having interest rates over 30% before resolution. If enacted, the cap could reduce the number of consumers with high-interest debt, potentially shrinking the market for debt invalidation services in the long term. However, in the short term, given the existing volume of credit card debt, it is unlikely to cause significant disruption. Also, most contracts are purchased at the beginning of the investment, lessening the need for new consumers as the fund nears its 36-month maturity. While the cap might affect broader credit markets, it doesn't challenge DVF2’s model, which relies on legal debt relief, not credit issuance. Additionally, the proposal would need Congressional approval, making its passage unlikely.
Q47: What was the actual performance of Fund I, from how much capital invested and duration?
A: We first invested $2.4M and then waited until all accounts were purchased and we saw performance over approximately 6 months. Then we raised the other $2.6M for this fund after and waited until we saw these being purchased and started DVFII. We have seen great performance with all payments being made and clear communication the entire time. We also first invested $250k of our own funds before DVF I and saw the entire cycle as well before raising capital for DVF1.
Q48: The term for this fund is estimated 36 months. Does it mean it could be longer? Anything less term?
A: The promissory note has a 36-month term but may be paid off early, potentially as soon as the end of the second year, though it is unlikely to exceed 36 months. The investment is structured as an interest-only promissory note with a balloon payment due at the end of 36 months. Returns remain fixed, unaffected by market conditions. The fund operates on an interest rate arbitrage model without management fees, ensuring all investor returns (20-25%) are prioritized before the fund's profits
Q49: There are a lot of debt funds in the market now. How is this fund different?
A: This is accounts receivable financing where our funds are invested at a cost of approximately 25% of the value of the asset. It has a much higher interest than most funds out there with a 3 year term. In addition, any profits above the 20% return that the borrower receives is being used to purchase more receivables which then increases our collateral and lowers risk.
Q50: Do you accept funds from SDIRA or Solo 401K? Any tax implications one way or other?
A: Yes no problem here. There are no tax implications because we are not borrowing any money. This is interest payments on a note. So no UBIT or UDFI taxes on SDIRA or Solo 401k investments.
Q51: Is the DVF2 considered a security, and if so, does it have a prospectus? How/when can we view the prospectus?
A: Yes it is considered a security (you are investing in shares of a LLC that owns the promissory notes). The prospectus and overview are included in our online portal for your review.
Q52: How do we transfer our IRA's into the fund?
A: You would need a self directed account setup first. So if you are with Fidelity, Schwab or one of the traditional IRA companies you would roll it into a new self directed account. We use uDirect IRA for this. Here are the steps to get setup: (1) Open and Account with uDirect (2) Fill out a Transfer form to submit to the old custodian in order to roll over the funds (3) Once your Self Directed account is setup you create a profile in our syndication pro software and submit the investment to the Self Directed Custodian to fund the investment. The entire rollover process should take 2 weeks.
Q53: Will the Shield Fund 2 have any influence, interaction, or business associated directly or indirectly with publicly or privately traded corporations?
A: Not that we are aware of. The fund lends money to Resolution Processing which is not publicly traded.
Q54: Is DVF2 a real estate fund or a debt consolidation fund?
A: Its not either. Debt Invalidation is a legal service provided not a consolidation service. DVF2 is a lending company that is doing a loan as a promissory note and obtains interest income on the promissory notes.
Q55: Are there SEC restrictions on who can invest in DVF2?
A: We can have up to 35 Non-Accredited Investors in our fund and unlimited Accredited Investors. Those are the primary restrictions.
Q56: What percentage of U.S. debt invalidation cases does Resolution Processing LLC handle?
Resolution Processing focuses on legal debt validation, identifying violations of consumer protection laws, and facilitating debt settlement. It manages around 10,000 clients with an average debt of $20K, actively working on invalidating over $200M— a small but significant share of the debt market.
Q57: How do marketing partners find clients under Fair Credit Reporting Act restrictions?
Marketing partners use online advertising targeted at individuals in default. Some data sources indicate default status without exposing sensitive information.
Q58: If OCG Debt Validation Fund II, LLC goes bankrupt, is the investment lost?
Investors receive the LLC’s assets, which include loans to Resolution Processing secured by receivables purchased at 25% of their value. If Resolution defaults, the fund can claim receivables worth four times its cost. The LLC has minimal expenses (<$10K/year) and earns revenue from the loan.
Q59: Are there regular audits or financial reviews for OCG Debt Validation Fund II, LLC?
Yes. Financial statements and contract updates are provided quarterly, along with an audit of receivables and bank transactions to verify validity and collectability.
Q60: What legal services do attorneys provide, and how are they connected to Resolution Processing?
Resolution Processing sources clients and manages account servicing. Attorneys handle legal debt validation and pursue creditor violations to help clients resolve their debts.
Q61: How is debt transferred from credit card companies to debt collectors?
Banks sell delinquent credit card debt to collection agencies for pennies on the dollar, writing off the loss. Collection agencies then attempt to recover as much as possible, often at high margins.
Q62: When would a client's debt not be invalidated?
Debt remains valid if:
- The client stops making payments.
- The original creditor retains the debt.
- Collection agencies prove the debt’s validity.
- Legal challenges fail.
- Resolution Processing pre-screens clients to maximize success rates.
Q63: What is the basis for the 80% recovery rate, and is there documentation?
The rate is based on thousands of cases over several years, with data updated as of November 2024. A new CRM system is being implemented for real-time tracking.
Q64: Does Resolution Processing collect all client payments and pay attorneys on their behalf?
Payments go through an intermediary platform, which distributes fees separately to Resolution Processing and attorneys, as outlined in the client contract.