A year ago, I wrote a post Tenants Rights & Foreclosure that discussed the absence of tenants rights when landlords don't pay their mortgage. Despite the fact that the tenants paid their rent, if the landlord's property was foreclosed upon, the tenant was out of luck.
Effective May 20, 2009 - the Protecting Tenants at Foreclosure Act became law and provides protection for tenants under the aforementioned circumstances.
The main provision, Section 1 (a) provides that a tenant be given 90 days notice to vacate (assuming a bona fide lease).
Who serves the notice? Foreclosure attorneys typically include unknown/known tenants on the summons 
service list - can the service be construed as notice? Surely a summons is a pretty good indicator that foreclosure looms.
Will foreclosure attorneys automatically give
90-day notice along with service of the summons to tenants?
Legally, I doubt if a lender or foreclosing attorney has the right to submit a notice to vacate until after the foreclosure sale. Even so, perhaps attorneys will play it safe and give notice along with the service of the summons. This is probably the easiest way to notify tenants.
Browse through Section 703 - it would appear investor-buyers are forced to take over Section 8 tenants whether they want to or not. This may hinder short sales
Tenants shopping for a new residence should try to verify the financial stability of the property owner.
Check the amount of equity in the property via public records. When signing a lease, include a clause providing for the possibility of a foreclosure; make a provision that allows the tenant to sue the landlord for moving expenses as well as a clause requiring a landlord to pay all mortgages/debts attached to a property. An ounce of prevention is worth a pound of cure.
While the Act does raise questions and has potential for abuse it is clearly a step in the right direction for tenants that pay rent and are caught between the bank and the landlord in the foreclosure process.
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