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Judgment Investing: An Profitable Real Estate Investing Method You Probably Don’t Know About Yet

Ankit Duggal
3 min read
Judgment Investing: An Profitable Real Estate Investing Method You Probably Don’t Know About Yet

Did you know that you could buy real estate for as little as a $1,000? This is not an infomercial – rather, I am talking about “judgment investing” as a unique investing strategy to purchase real estate.

Judgment investing is achieved through court ruling that gives a creditor the right to take possession of a debtor’s real property if the debtor fails to fulfill his or her contractual obligations. Sounds a lot like mortgage investing but it is different.

 What is Judgment Investing?

A judgment is memorialization by law that money is owed but a judgment alone cannot force anyone to pay the creditor.

Let’s illustrate through a simple example:

Let’s say Sam lends $10,000 to his friend Jill to help her pay bills and remodel the bathroom. Even though they are friends they write up an agreement stating that Jill will repay Sam on a set payment schedule until the $10,000 is paid off. Everything is going good for a few months and then Jill stops paying Sam. Sam wants his money and Jill is MIA. So, Sam takes Jill to court and shows the judge the contract that he signed with Jill .The judge reviews and confirms that Jill needs to pay Sam. A judgment is really just a ruling in a court of law. Now Sam has a judgment against Jill and he requests payment but she still wont pay.

What can Sam do to get his money?

This is where a lien comes into play. A judgment gives Sam the right to place a lien on all of Jill assets to help recoup the money owed to him. A lien is a claim of a specific value against certain property.

Sam can tie this lien to Jill’s house and other assets as he or his lawyer deem appropriate.

This is all great but when does the real estate investing piece of this come into play.

Patience is a Virtue to Judgment Investing…

Before we jump into the real estate lets do a quick recap:

  • Sam has a $10,000 judgment against Jill that he used to place a lien on Jill house (I wonder if this friendship will last?)
  • Jill owes Sam $10,000 and her house now has an involuntary lien placed on it.

Now that the lien is on the property; Jill cannot sell, refinance, or bequeath her house without paying off all liens on her property, which includes Sam lien. How can you as a real estate investor get involved?

Here is Where a Real Estate Investor Can Step In:

Sam gets tired of waiting for his money and wants it now but Jill is not paying so he decides to sell the lien to an investor. You can be that investor and buy out the lien. Typically you should look to buy out the lien for less than 10 cents on the dollar given the risk associate with investing in this strategy  (those are covered in the section below).

How to Make Money With This Strategy?

You can make money in judgments depending on how aggressive you want to be.

Active: You can search for uncollected money judgment, research defendant assets through a skip trace or asset search service, buy the judgment from the creditor, record them so they’re a lien on the defendant’s real estate, and then you can actively reaching out to the debtor (within the guidelines of the Fair Debt Collection Act) and offer to buy out the property using a subject-to or other creative real estate strategy using the leverage associated with the judgment lien.



Buy the judgment for 2 to 5 cents on a dollarSecure judgments onto real estate assets Costs associated with filing and perfecting the judgment through lienTime and effort associated with locating the defendant assets

Passive: You can search for liens associated with judgments on properties at the county records, market to the lien holders, buy the liens from the creditor, and then wait for the debtor to either sell their property or refinance at which time the settlement agent will give you a call to satisfy your lien.



Buy the judgment closer to 10-15 cents on a dollar Higher buy point costs associated with buying the lien v. judgment.Uncertainty of pay off timeline


Risks Associated with Strategy

As with any strategy there are risks associated with implementing any strategy. Below are the key risks that are associated with this strategy:

Foreclosure: when a debtor is behind on their obligations then they are more likely to be behind on their mortgage. This can lead to the mortgage holder to foreclose on the debtor asset, which can put the judgment lien in jeopardy. To mitigate this risk, you should keep tabs on the foreclosure records associated with the asset and secure your lien against other assets owned by the debtor if applicable.

Bankruptcy: if a debtor claims Chapter 7 bankruptcy then your judgment lien can get wiped out and your invested capital can be a total loss risk. Hence it is important to not over pay for a lien or judgment, as your capital can be a total loss. You can mitigate this risk by not overpaying or diversifying your investment capital across multiple liens.

Judgment investing can be a great investment tool that can be used for high yield returns and/or real estate acquisition strategy. This investing technique comes with the risk of total loss with high  upside return potentials.

Do you have any other creative investing methods or experience working with Judgment Investing? Share below?

Happy Investing
Photo: swanksalot

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.