In a short sale the bank(s) releases their lien for less than the full amount owed. Whatever you were to offer would have little impact on your friend, in fact with you living there you may be willing to pay more than another buyer might. Talk to a local agent who is well versed and experienced with Short Sales. There is too much to know to explain it all here, but this could work well for both of you.
Best of luck.
How did you come up with the price? Are you getting financing? If the house needs lots of work like you have mentioned it might be difficult to get conventional mortgage. The seller may not be motivated enough if it has been sitting empty for a year.
Go see the house with your Buyer Agent and a contractor in tow to get an idea of how much it would cost to make the house safe to live in, and have a tree service drive by the property and give you an estimate on how much it would cost to take the tree down.
When you have received both of those estimates, discuss with your Buyer Agent how to factor those expenses into your offer and then have your Buyer Agent negotiate the deal for you.
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You need an experienced agent who can research the property, determine the value, and discuss various strategies to get the best price. Ultimately a seller has to be willing to accept your offer and believe itâ€™s as good as they can hope to receive or they will decline it and wait for another offer.
Experience and market knowledge are key to success. Do not try this without your own representation. Check out some of the agents on "find a pro" up above. Read some of their answers to questions and blog posts. Google their names and check out their websites if they have them.
Interview a couple of agents generally before you discuss the specific property.
One other thing, is your financing in place? Sellers want to know that an offer is genuine and having your loan worked out in advance is critical. If you don't have a lender in mind, again check out the local pros here on Trulia or ask the agent you select for a recommendation.