Under the Deed of Trust Act in Washington, once a Trustee's sale has taken place, the person occupying the property has 20 days to leave. If the person does not leave, he can be sued for rent and be evicted in a process called unlawful detainer. This is a process that isn't fun for anyone involved but it can be the only way to get a defaulting homeowner or renter out of a property.
The state legislature noted the housing decline was leading to lots of foreclosures, especially on property that had been purchased on speculation, highly leveraged, and primarily used as investment property with tenants. These tenants believed that they were safe because they were paying their rent, but with the Trustee's sale, they had to leave. Washington amended the Deed of Trust Act under SB 5810 to extend new rights to tenants requiring notice of 90 days and replaced the 20 days in the rental property with a new 60 day window after the trustees sale.
Not to be outdone by the individual states, Federal law passed in 2009 called Protecting Tenants at Foreclosure Act. This Act required the purchaser at the trustee's or sherriff's sale to honor unexpired leases. So, instead of being able to keep your tenants in the home for just 60 days, they could stay until the end of the lease term.
Now, this is not automatic. If you have a Trustee's sale scheduled at the end of this week, you cannot go in and sign a lease with your tenant and expect it to be honored. That said, I would still sign the new lease, because I believe the burden of proof that the lease isn't to be honored rests on the new owner, not the person renting the property. However, if you can, you should sign a new lease, with market rate rent and terms, prior to getting the Notice of Trustee's sale. The trigger point in doing this should be the Notice of Default. Once you receive that document, re-write your lease.
Even if you fail to re-write, the tenant gets an added benefit of being able to stay for 90 days after the sale and really its 90 days after he receives notice from the new buyer which may be even longer than 90 days. But, if you re-write the lease, and we have been doing these for the bottom rate on the market for 2 year terms. If the buyer at the trustee's sale is not going to live in the property, he has to honor the lease. You just gave a very good Christmas gift to your tenant by reducing his monthly rent, and stabalizing his family through the season.
The added bonus is that you got to drop a lump of coal in the bank's stocking. So Merry Christmas to you too!
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