Much has been written on the ongoing push for legislation to protect consumers in the wake of the unfolding sub-prime collapse.  The House of Representatives recently passed H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007.  Commentary on this legislation most often focuses on the restrictions that it would place on lenders seeking to make loans. 

But there is another important feature in this bill which will be of interest (concern) to investors.  In case of foreclosure, the entity reclaiming the property will have to honor all preexisting leases.   And you thought that banks used to be annoyed about that REO bouncing back onto their books - now they get the property and the tenant. 

This, potentially, is a two-edged sword for investors.  On the bright side, while a tenant-occupied property is a pain for a bank, it can be a good thing for an investor (assuming the tenant is one that you'd want to keep).  Furthermore, it restricts the bank's options for selling the property - your competition in bidding for the property is pretty much restricted to other investors. 

On the flip side, though, this will make the banks take a second look at their policies for lending money to investors.  This change represents an additional risk and cost for the banks, and they're gonna pass it right along to you and me. 

If you're interested you can read the press release and the bill itself, along with a related article from the New York Times.