Mr Justice Weatherup held that the property, once owned by an unnamed rock star, was wrongly assessed as being worth £5m in 2009.
The house should instead have been valued at between £3m and £3.75m, the judge decided.
He found for a London-based finance company who lent out nearly £1m to its owner, businessman Paul Campbell.
Aurora Leasing Ltd can recover losses of more than £900,000, plus costs and interest set at 5%, Mr Justice Weatherup ruled.
However, a 20% reduction was imposed for contributory negligence in ignoring so-called "red flags" around the transaction.
Aurora sued the Belfast office of surveyor and estate agency Colliers over its valuation of Terrace Hill House, a five-bedroom residence set in grounds in the exclusive Shaw's Bridge area.
After purchasing it Mr Campbell, whose previous business interests included sportswear brand Gaelic Gear, sought to borrow money to start an art dealership.
He agreed the loan with Aurora based on the £5m valuation from Colliers - up from an initial £4.5m estimate in 2008.
The arrangement involved a second mortgage on the mansion acting as security.
Aurora's owner told the court how he felt the deal couldn't go wrong because there was so much equity in the property.
But when Mr Campbell defaulted it turned out to be worth substantially less than the valuation obtained.
By the end of 2009 it was estimated to be worth only half as much, with its value having plunged further since.
With the primary mortgage lender having already secured an order over the £2m said to be owed to it, Aurora was left with little chance of recouping its money from any sale.
Mr Justice Weatherup reached his decision after assessing the worth of a number of comparable homes.
Delivering judgment on Monday he said the proper value in April 2009, just before the loan was agreed, should have been between £3m and £3.75m.
"It seems to be apparent that the valuation of the property at £5m was a significant overvaluation," he said.
He pointed out that this figure was maintained in a "falling market".
The judge held that if the £3.75m upper limit assessment had been made at the time Aurora probably would not have gone ahead with the deal because there was not enough "cushion" between the loan and the mansion's value.
Mr Justice Weatherup confirmed: "The loss to the plaintiff in this case seems to be the amount of the loan, which is represented by the overvaluation I conclude to be to the extent of £1.25m to £2m.
"However, he also pointed to other "red flag" indicators which a prudent lender should have been alerted to before agreeing the deal.
"I propose to find contributory negligence to the extent of 20%," he said.