I have been getting this question a lot lately and the answer is yes. Under the law in most states (all that I know of) a foreclosure action effectively cancels your right to occupy a property under a residential lease. In most foreclosure lawsuits, the lender will serve a foreclosure notice to the tenants as well as the owner. This puts you on notice that you will be forced out when the foreclosure goes through.
In most cases, a foreclosure action will take several months. If you do become aware of a foreclosure on a property you are renting I would recommend seeking legal advice right away. There may be a way for you to recover a lost deposit and/or any future rent payments by withholding rent. Be careful to consider this option only after consulting with an attorney.
Prior to signing a lease and putting up any money on deposit you may want to check the public records to see if the property you are planning to rent may already be in foreclosure. This may be a real possibility with the number of foreclosures mounting.
There is currently under consideration a federal law that would require lenders to allow tenants to stay in a property through the balance remaining on their lease. Under this plan, your rent would be paid to the lender after your landlord has been foreclosed.
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