It does sometimes happen that owners who are losing a home will lease it out to tenants. (They may or may not make the mortgage payments.)
Fortunately if the home is foreclosed on, the tenant still has the right to stay in the property through the contracted lease period as long as the make the rent payments to the new owner, aka the bank.
However the most common "abuse" we see in this situation is the owner not giving back the tenant's security deposit. Any prospective tenant would be well advised to find out if a home is in pre-foreclosure status before putting down a security deposit!
Hope this helps!
Berkshire Hathaway HomeServices
The Tonnesen Team - with over 30 years of experience helping families call Las Vegas "home!"