Assuming you purchased the property non owner occupied, once you defaulted on the loan, you agreed to forward all rents received to the lender. You also received rents for the month of August when you were the owner for part of that time. This could be construed as fraud - you should check with your attorney for confirmation.
When did you give the tenant notice? I am a California and Texas Broker so, not sure about your local requirements - the $3500 sounds like local legislation or perhaps your agreement with Section 8. In California our section 8 agreements are for one year at a time.
Legally, there is confusion over who is responsible for the renters' deposit once the bank owns the property. Ethically, I believe the renter deserves their deposit back.
Lastly, you are no longer the owner. Drop the insurance.
Good luck with that. Sounds like you have a lot of loose ends to take care of.
You are no longer the owner after the sherrif sale which you said was completed on 8/27/08. The bank or whovever bought in the sale will be the new owner, so its their responsibilty to get the insurance because its not your house. Regarding tenants, they already got the notice of foreclosure by lawyer so they had enough time to find a new place, so my assumption is that you are not responsible for tenants relocation. You can check with your lawyer about this, just to make sure if there's anything you have to do further. Good luck!
Whenever the title to the property has been quieted in the name of the purchaser at the foreclosure sale that is when a foreclsoure is complete.In terms of your obligation to the tennant it all depends on the rental agreement. Were you renting the home month to month? Did you follow the guidelines in terms of your state laws for renters rights? There are so many variables that make this difficfult to answer. I would suggest you seek some legal counsel in this matter. In Nevada once the homeowner moves out of the property they will know longer be able to get insurance, typically the lender insures the property at that point. However,if the seller still owns the propety and rents the property they should have renters insurance on the property. I
Hope this was somewhat helpful .