Pre-Foreclosure - Need To Understand!! NEWBIE
I am very new to pre-foreclosures. Therefore, some of my questions may seem second nature to most of you.
Here Goes!
When approaching a homeowner regarding their pending foreclosure, I have heard the term or phrase - "Give you cash for your equity". Is the equity based on their original loan amount and now the difference on what they owe? Or, is it the equity based on FMV? and now what they owe?
I'm confused. If you pay a homeowner for their equity to get title to the house, you have to pay off the mortgage right? Where exactly do you make any money?
Again, I apologize for the questions, but I feel a stupid question is one that is never asked.
I appreciate all your feedback! 
Equity is the difference between what the property is worth on the open market in its "as is" condition and what's owed against it. That really defines Gross Equity. There are always other associated costs/expenses incurred in order to get equity out of the property.
Without using numbers, imagine that someone wants to sell their home using a real estate company. The sales price less all expense would equal the net equity in the home. Those expenses could include any fixup expenses, seller concessions, real estate fee, mortage payoff, holding costs, and settlement (closing costs) charges.
When someone says, "Give you cash for your equtiy" that means cash for SOME of your equity. You gotta make a profit too, right??
In the example you cited, preforeclosure. Their primary concern-if they are truely motivated -is debt relief. "Get this monkey off my back and give me some cash".
Since you are just starting out in preforeclosure, I hope you will treat these people with sensitivity and not rape them. There's plenty of profit to be made without resorting to being a pirate, plunder, You still have to look yourself in the mirror every morning.
I couldn't agree more regarding treating the homeowner(s) with respect and dignity during their financial crisis. I wouldn't handle it any other way. I am not sure how to handle it with the homeowner so as not to mis-lead them into thinking they will get all their equity. I find some of the sample pre-foreclosure letters mis-leading and giving the homeowner false hope.
I thank you for your response.
I to am a newbie and think that question is a good one, But I have what may be a silly question, How do you go about giving the homeowner money, I mean is it written mortgage, due you use your own funds?
You could use your own funds to give them cash assuming you have have the money to give them. I would consider this risky unless I had a really good deal, as I've got to do something with the house after I take it over. Like I said if I had a good enough deal (something like bought at 60-70% of FMV) I'd go ahead with it, otherwise I'd get them their money after I've got the house taken care of (resold or whatever). The only problem with using your money is that you'll probably end up running out depending on what your plans for the property are. I'd generally use other people's money for this...and I'd do that by paying the owner after I've been paid. I'd like to hear what others think about this...
Ryan J. Schnabel
i am also a newbie interested in pre foreclosure. My question is what is FMV?
FMW= Fair market value of the house
Sammy,
I could not agree more with your thoughts regarding treating homeowners with respect and dignity. One of our primary approaches to homeowners is being there to help. If we don't really believe we are there to help, neither will they. And, as you said, we have to look ourselves in the mirror.
I thought we were here to take them for all their worth
[ Edited by timerwin on Date 02/03/2004 ]