Short Sale / PreForeclosure Equity

If I am going to help a seller by purchasing their property on a Short-Sale and then lease-optioning the property back to them, what will become of the equity they have in their home?

For example, if the house costs $100k, and the seller has $25k in equity, and the bank is owed $75k. If I purchase the house for $70k, will the sellers get any of their equity?

Howdy Jstoring:

You do not understand equity. If you buy at $100,000 they have $25,000 equity. If you buy at $75,000 they have 0 equity. If the house were paid for they would have $100,000 equity and $75,000 equity in the above examples. My wife has a hard time with this too even after all these years. Equity is simply what they get when they sell, the check they get when all is paid for, mortgage. points, appraisal, commissions is what we call net equity. There is always somebody holding out their hand to get paid when you sell a house.

In your above example the seller will net zero. The bank will lose and actually have negative equity. The bank also will have to pay the commissions etc and take even more out of their the sale price of $70,000 netting them somewhere in the $65,000 range in many cases.

I hope this has helped. Short sales can be confusing. If the bank is going to take less than they owe they do not want the seller to get money at the closing. I am sure that makes sense.