This is an excellent question. Without giving specific legal advice, you should be aware of the following law effective this year, pertaining to this issue:
A) Disclosing Notice of Default to Prospective Tenants:
Every landlord who offers for rent a residential property containing one-to-four units must disclose in writing to any prospective tenant the receipt of a notice of default that has not been rescinded. This disclosure must be made before executing a lease agreement. If a landlord violates this law, the tenant can elect to void the lease. If voided, the tenant can recover one monthâ€™s rent or twice the amount of actual damages, whichever is greater, plus all prepaid rent, as well as any other remedies available. If the lease is not voided and the foreclosure sale has not occurred, the tenant may deduct one monthâ€™s rent from future amounts owed. The written disclosure notice as provided by statute must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. A property manager will not be held liable for failing to provide the written disclosure notice unless the landlord has given the property manager written instructions to deliver the written disclosure to the tenant. This law will expire on January 1, 2018.
Senate Bill 1191 (codified as Cal. Civil Code Â§ 2924.85) (effective January 1, 2013).
B) Requiring 90-Day Notice to Terminate After Foreclosure
A month-to-month tenant or subtenant in possession of a rental housing unit at the time the property is foreclosed must be given a 90-day written notice to terminate under California law. For a fixed-term residential tenancy, the tenant or subtenant can generally remain until the end of the lease term, and all rights and obligations under the lease shall survive foreclosure, including the tenantâ€™s obligation to pay rent. However, four exceptions allow a 90-day written notice to terminate a fixed-term lease after foreclosure as follows: (1) the purchaser or successor-in-interest will occupy the property as a primary residence; (2) the tenant is the borrower or the borrowerâ€™s child, spouse, or parent; (3) the lease was not the result of an armsâ€™ length transaction; or (4) the lease requires rent that is substantially below fair market rent (except if under rent control or government subsidy). The purchaser or successor-in-interest bears the burden of proving that one of the 4 exceptions has been met. Additionally, this law does not apply if a borrower stays in the property as a tenant, subtenant, or occupant, or if the property is subject to just cause rent control. This law will expire on December 31, 2019. This new California law is similar, but not identical, to the 90-day termination notice requirement under the federal Protecting Tenants at Foreclosure Act (12 U.S.C. Â§ 5201, et seq.) as extended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is set to expire on December 31, 2014.
Assembly Bill 2610 (codified as Cal. Code of Civ. Proc. Â§ 1161b) (effective January 1, 2013).
C) Revising Notice of Trusteeâ€™s Sale to Tenants
The specified notice that a lender posting a notice of trusteeâ€™s sale for a non-judicial foreclosure must also post, and send by first-class mail to the occupants, has been amended. The revised notice states that the occupants may be entitled to a 90-day eviction notice or the right to stay until the end of a fixed-term lease, depending on the circumstances. It also states that all the tenantâ€™s rights and obligations under the lease continue after the foreclosure sale, including the tenantâ€™s obligation to pay rent. This notice is only required for residential properties where the billing address for the mortgage loan is different than the property address. The notice must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. The Department of Consumer Affairs (DCA) must make translations of the notice available on its website. Changes to the notice take effect on March 1, 2013 or 60 days after the DCA makes the notice available on its website, whichever is later. This law will sunset on December 31, 2019.
Assembly Bill 2610 (codified as Cal. Civil Code Â§ 2924.8) (law comes into effect on January 1, 2013).
D) Extending Post-Foreclosure Protection for Tenants
Existing law requiring a statutory notice when terminating a residential tenant after foreclosure, which was set to expire on January 1, 2013, has been extended to December 31, 2019. Under this requirement, any immediate successor-in-interest in a residential property must, for one year after a foreclosure sale, provide a specific notice when terminating a residential tenant. This notice explaining the tenantâ€™s rights must be on a separate cover sheet or, for a 90-day termination, incorporated into the notice to terminate. (contact me).
I would think the greatest risk for a tenant is in the lease term being unpredictable.