Investing In Judgments

August 11, 2023


As with paintings, judgments can be bought and sold. Just like paintings, you can buy junk or buy good investments.

Unlike a painting, you do not buy a judgment for its looks, just to hang on a wall. Anyone who buys a judgment should plan on either enforcing it, having some entity enforce it, or to sell it later, hopefully for a profit.

There are at least four good reasons to buy judgments:

1) Judgments have state-mandated interest rates. For example, in California, the interest rate is currently 10% simple interest per year. Very few investments can match this interest rate.

2) Judgments can be renewed for a long time.

3) Judgments can be purchased at a huge discount.

4) Once a judgment is purchased, liens can be placed on real property and sometimes the personal property of the judgment debtor.

There are at least four reasons not to buy judgments:

1) Judgments are not cash, and are not fungible. You cannot bring a judgment to a bank and get any cash for it, or use a judgment as collateral to get a loan.

2) Judgments are risky. Everything depends on the health and finances of the judgment debtor. If the debtor dies, moves out of the country, becomes disabled or sick, or successfully files for bankruptcy protection, the value of the judgment can fall to zero.

3) Judgments cost money to recover or sell. If you have a judgment and want it enforced, the average cost is 50%. Worse yet, there is no guarantee, as repayment depends on the judgment debtor. If you sell your judgment for cash, you may get more or less than you paid for it.

4) Judgment liens may not pay off on “underwater” property (where there is no equity). Judgment liens can be stripped off by a bankruptcy court, or have very little effect in places like Florida.

Should you buy a judgment as an investment? The answer depends on the details of the debtor, and the price you must pay to buy ownership of the judgment.

A judgment broker, who knows about thousands of judgment sales, can give you an estimate of a judgment’s worth. However, only the judgment debtor and the details about the debtor, determine the actual sale price of any judgment.

As an investor, you should always buy judgments outright, where you own all rights, title, and interests in the judgments. Never share the ownership of a judgment, unless you seek the advice of an attorney, and they have verified any shared ownership proposals.

Unlike cash or gold, a judgment is a piece of paper that only has value to the current owner. A stolen judgment is useless, however if you lose a judgment, the court (for a fee) can easily replace it.

If you can afford to take some risk in your portfolio, and you can find a bargain where the risks are moderate, judgments may be no more risky that stocks. If the economy bounces back, they might become the best investments around.

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