[quote=recordsclerk]In your scenario I think you should ask the original owner to return said deposit and refund 28-29 days worth of prepaid rent. There is nothing wrong with collecting rent while not paying mortgage, but collecting rents beyond your ownership and not refunding deposit is crap. I still don’t see your point that the new owners are bad people because they want rent from tenants that live in their property. They should credit them this month’s rent, but starting next month rent should be paid. If the home would have been sold through the short sale process, would this not be the same outcome for the tenants. Why is this scenario any different? If the new owners want the tenants to leave quick, the tenants should be paid a fair amount (cash for keys) to leave quick.[/quote]

The scenario is different because the law is dramatically different and the type of sale is dramatically different.
In a normal sale or in a short sale, there is a process by which the tenant’s deposit is transferred to the custody of the new owner as is the already-paid rent.
That usually is not a separate check or anything.
Its usually just an additional line item on a closing statement or just a contract addendum stating that “x-dollars are credited to tenant’s ledger for deposit and y-dollars are credited to cover rent through (random date)”.

That’s fine.

However, in a foreclosure, the lease/rental agreement is wiped out.
It ceases to exist as does the mechanism tying the payment to the detainment of the property.
So the money spent no longer actually pertains to any use of the property.
It just becomes money owed by the (former) landlord to the tenant.
The tenant’s only recourse to recover this is to ask or to pursue collection activities (like a lawsuit).
Suing a person who just lost a house in foreclosure is not a very fruitful endeavor.
Ask any HOA president (I am one).
What was happening for a few years was that the deadbeat homeowner would rent out a home and include the maximum legal deposit (3x rent in CA).
Then they would get foreclosed upon with a debt owing to the tenant of 3-4 months worth of cash (deposit + rent already paid).
This was usually followed by bankruptcy.
The end result was very often a tenant who was now totally broke and homeless with their only solution to be a petition to the bk trustee.
I had one client who had this happen 3 times as a tenant (which was why she was buying).
As a way to avoid more bankruptcies by tenants (which were surging) and lawsuits that followed, the federal government created the 90 day rule.
The notice to quit (called the notice to vacate or the eviction notice) had to be 90 days and any new rental agreement had to be voluntary.

Cash for keys refers to the new landlord (bank or investor) basically bribing the tenant to move early.

And I don’t think there is anything wrong with that.

In fact the landlords that were the subject of this rant just offered a hefty sum to make this problem go away.

My only issue here was the violation of the 90-day rule and the standards of practice.