Urgent Advice Needed: Pre-Foreclosure Deal

[Drew Carroll]

I am new to real estate investing and have a potential opportunity (at least I think) fall into my lap. Someone that I know personally owns a very nice house that is currently listed for sale for over $1 million. From what it sounds like the house was fully paid for when it was built, but now the owner has taken out a home equity loan. The owner does not have an income and has stated that they cannot afford next months payment and need to sell the house asap. I saw an opportunity to a) help them out of their financial situation, and b) get a great deal on the house and immediately re-list it to hopefully make a nice profit. I presented the idea to an investor friend of mine who said he would put up the money for the deal if we could get it at the right price. I have no experience in this type of investment so I wanted to get some opinions on what i need to look out for and how i should structure the deal.

My questions:

1) How should i approach the property owner to present the deal? I'm not sure how much they owe on the loan and i doubt they would tell me. Do i just make a written offer and see what happens?

2) Are they legally allowed to sell the home for less than what they owe on the loan? Is this what would be considered a Short Sale? (I apologize, i am a total newbie in real estate)

3) Since i am not bringing capital or real estate knowledge to the table, how should i structure my portion of the deal? Commission, finders fee, percentage of profit once the house sells?

4) Is there a rule of thumb or a percentage of the appraisal i should be spending on a deal like this?

Thank you for the help!