Depending on the foreclosure laws in your state, the tenants if they actually have a bona fide lease with the property owner have the right to live out the terms of their original lease. There are caveats. It can not be a family member, the lease has to be within 15% of normal market rents, and the lease will automatically expire 12 months after foreclosure.
As for the owner, they get rental rights regarding the eviction. They may be offered cash for keys to move out (up to $6,000) and if they refuse, they will face an eviction lawsuit. If the mortgage was sold to Fannie Mae, the owner may rent indefinately from Fannie Mae, but this would not put the property on the REO list.
The last thing you want to do is purchase or have a client purchase a property with a tenant in the property. They are difficult to get rid of, and this can quickly destroy the good feeling that comes with purchasing a home.
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