Patrick.net writes about a 2009 federal law allows renters to stay in foreclosed homes to the end of their lease so long as they are current on their rent and the new owner does not make it their primary residence. This means that in addition to a long period of rent- and mortgage-free living, people choosing to default can rent out their homes at very low prices, and the banks will be forced to honor those contracts. So, the logic goes, why not offer your cousin a sweet long-term lease on the home you’re about to lose?

Unethical? Maybe. Deserved? Probably.

Banks often employ shady lawyers and contractors to try to scare misinformed tenants into vacating, but the law is on renters’ side:

Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as “first in time, first in right”). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the “Protecting Tenants at Foreclosure Act of 2009.” This legislation provided 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 (this notice period is longer than any state’s non-foreclosure notice period, a real boon to tenants).

An exception was carved out for the buyer who intends to live on the property — this buyer may terminate a lease with 90 days’ notice.

Nolo further opines:

Does It Make Sense to Evict Tenants?

New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration — after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It’s hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.

Another point to note is that if a tenant is writing checks to his old landlord after foreclosure, the bank is probably not going to pay for maintenance, so it would be best to negotiate reduced rent as compensation.

Of course, anyone actually thinking about this or walking away from a mortgage should consult a real estate attorney in their state.