When an owner defaults on a mortgage, the renter generally lost the right to live there. Many renters found themselves in the position of mailing rents to owners that were keeping rent checks and not paying the lender because they were in default anyway. So tenants in good standing were being victimized by owners and then kicked out by lenders. Banks typically evict all residents after foreclosure believing that an empty property was easier to sell. They often chose to evict tenants rather than have a property with stable cash flow because they didnt want to manage it.

May 20, 2009

Before this date, the rule in most states was if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease.

Lenders, thinking that a empty property would sell better sent notices to quit and tenants were forced to leave. The dislocation due to a forclosure, often made renters in good standing victims of the mismanagement of the owner.

Lenders further complicated the problem because their actions created vacant buildings and empty communities in place of paying tenants. Entire neighborhoods were left open to blight and crime. Government finally came to do something about this.

Protecting Tenants at Foreclosure Act of 2009

The new laws stated that leases would survive a foreclosure, meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days' notice before having to move out.

If the new buyer intends to live in the property, an existing lease could be terminated in 90 days. This also applies to Section 8 tenants.

Fannie Mae (REO) Rental Policy

4,000 properties foreclosed by Fannie Mae will not evict tenants just because their landlord has defaulted. Instead, Fannie  will offer month-to-month leases until the property is sold, or financial assistance for their transition to new housing. Any type of single-family, two- to four unit properties, condos, co-ops and manufactured housing is eligable.
 
Forclosures in Rent Controlled Cities

Banks and buyers of rent controlled property have to abide by the just cause provisions of their city or state. In San Francisco tenants cannot be evicted without a valid reason, such as failure to pay rent, damaging the property, illegal activity, building demolition or owner move-in.

A change in ownership does not allow the new owner to evict and so tenants may stay under existing covenants.  If your buyer is looking to move in to a foreclosed property he or she should be aware that rent control may apply. New owners looking to gross up the rent by evicting existing tenants may not be able to so.

REsourced from www.yourpropertypath.com