As far as I know, this practice only pertains to foreclosures owned by government entities. The government has decided (at least in this case) to encourage home ownership by giving the owner-occupant a competitive advantage over investors, who would win the bidding war every time with their ability to waive inspections and avoid the mortgage hassles.
It is in the government's interest to promote homeownership, which supports neighborhood stability, and maintain property values. Home owners tend to take better care of a property than landlords, which benefits the surrounding homeowners.
Few home owners are happy to see a neighboring house sold to an investor, especially if the investor rents the property. You can say this is stereotyping, but home owners generally perceive renters to be bad for property values.
By the way, I am an landlord. I do not always know when weeds have sprouted up at my rentals. With a few wonderful exceptions, my tenants ignore the weeds, and the neighbors call me to complain. This is one of the many reasons that rentals are perceived as being a negative influence on property values. I don't allow my tenants to have loud parties or dogs that bark and annoy the neighbors. My tenants are not allowed to park on the sidewalk, which looks trashy. Many landlords don't care how the neighbors feel, as long as the rent comes in.
For private sellers, I think whether the house will be occupied by owners or renters is of little concern, except in the cases where the seller has an emotional attachment to the house, and feels an obligation to his neighbors not to degrade the neighborhood.