Yes, it is legal in most jurisdictions. The reason is that the foreclosure paperwork is not really served on anyone in particular. It is usually recorded in the county where the property sits. This is usually deemed adequate "notice". Although, if a tenant is served at the owner's property, that may also be adequate notice, because it is presumed that the tenant would notify the owner, and the lender may not have been given any subsequent address by an owner if that owner was an "owner-occupier" when the loan was originated. One can always make the attempt to quash service on tenant for lack of notice to an 'owner', however, this may only be a futile attempt.
On the flip side - I have advised many a tenant about their rights and obligations when a landlord doesn't tell them about a pending foreclosure. There are many different and absolutely helpful steps you can take to keep yourself informed and lessen the likelihood you'll fall prey to an unscrupulous landlord/lessor. There are essentially two (2) or three (3) things you can do to arm yourself in this environment.
First, I would definitely pay for some service to check to see if a landlord/lessor is in the foreclosure process; that process in many jurisdictions can take up to 6 mos. Although, I believe there a limit to which you should pay, and not all services are accurate or even promising, nevertheless you should consider some type of notification service. One service that I know of that is accurate and relatively inexpensive is Tenant Protection Services http://www.TenantProtectionServices.com
***. Lessors typically pay or even charge their tenant/lessee a credit report fee of $25 in some areas. For a lessee to pay $15 for a report or $25 for a year is a very small fee to find out if a potential lessor is in foreclosure or once in the property to be notified if it falls into foreclosure at some point after signing a lease.
Second, I would negotiate with the lessor at the outset and put some terms into any lease or month-to-month rental. Now, be aware that there is no guarantee that a lessor will agree, and if you are bidding on a rental that has multiple offers to rent, you could be out of luck inserting your favorable terms. Although, as tough as it may be, it is worth a try. I would suggest that you make it a covenant of the lease contract that the lessor makes all mortgage, property tax, and insurance payments; if you are going covenant paying rent, keeping the place up, etc. If your landlord/lessor does not comply with those covenants, you may be able to forego your obligation to pay rent if you made the lessorâ€™s obligation to pay the mortgage (or taxes) an affirmative covenant of the lease, the breach of which could then relieve you of the obligation to pay rent until the lessorâ€™s default is cured.
Third, you can record your lease with the county recorderâ€™s office for the county in which your potential property exists. This will put on notice any lienholder that is going to file a â€œnotice of defaultâ€ or â€œnotice of Trustee saleâ€ that you have a possessory interest in the property and should send you a copy of whatever they would record in the county with respect to that property. Although, you will have to pay for every page of your lease that gets recorded and every county charges differently. However, this is not a bad idea if notice is important.
If you follow all this and complete your due diligence, you will greatly reduce the chances youâ€™ll have to sue your lessor for your deposit or rents or be surprised one day when the sheriff or the bank rep comes knocking your door, because they wonâ€™t; youâ€™ll have already been noticed weeks or months beforehand. All the best.
*** disclosure â€“ I know of the accuracy, because I have an affiliation to the service.