For instance, if you have a landlord and something happens to your or your family as a result of the landlord's negligence and failure to keep the property in reasonably good shape, you can sue and possibly win a judgment for tens of thousands of dollars, depending on all the circumstances of what happened. Even if you do not win the lawsuit against the owner of the property, it may cost the landlord thousands of dollars in legal fees defending against you in court.
Why people rent out properties in the first place in the face of this legal risk may be uncertain, but many landlords only have one or a handful of properties they manage. Thus, the risks of being sued and losing and having to pay a large amount of money are relatively small. Because many property owners do not have deep pockets, it is unlikely a judge would award you or any other tenant millions of dollars in damages and penalties on the landlord. It would simply be impossible for the total amount ever to be paid back and would qualify as cruel or unusual punishment.
Banks, on the other hand, can be sued for ten or one hundred times the amount of a typical landlord because they typically have hundreds of millions or billions of dollars in assets. If a bank has to pay a few thousand dollars in punitive damages, that is nothing to the firm in the overall scheme of things. And it is worth your time as a renter to get injured on the property and bring a lawsuit for millions of dollars against the mortgage company acting as a landlord.
Even if you are only awarded a few thousand dollars, the bank will probably pay it quickly. It costs you quite a bit less to initiate a lawsuit asking for millions of dollars in damages against the mortgage company than it costs the bank to defend against such a case. The bank will have to hire local attorneys and spend potentially tens of thousands of dollars in legal fees just to avoid having to spend even more money later on if they do not defend the lawsuit.
And since some banks may have dozens or hundreds of properties in foreclosure in numerous states that could be rented out, they leave themselves open to the possibility of being sued perpetually by tenants attempting to cash in. Especially because banks do no upkeep to foreclosed homes, the chances of a renter being injured due to the bank's negligence is much higher than if the property had been owned locally by a private citizen.
Because of this, banks do not even bother renting out properties that they have foreclosed on. They would rather the homes sit empty and abandoned, as opposed to opening themselves up for lawsuits based on the condition of houses they are doing nothing to take care of. Even if banks lost one or two lawsuits to renters, it may cost them millions of dollars they would otherwise not pay by leaving the houses to sit on the open market for months, empty and abandoned and dragging down the quality of the community.