We have a loan that was for business purpose to refinance rental property. The bank has started foreclosure since the property securing the note was a rental. However, the customer is now living in the property and it is not 120 days delinquent. Are we required to stop our foreclosure process, and if we are required to stop, can we request the customer bring the loan current and pay legal fees associated with the foreclosure process?

They cannot forestall foreclosure by moving into the property in the middle of the foreclosure process. The loan, I assume was not originally subject to either RESPA or TILA.

No the loan was not subject to RESPA or TIL, but we are unsure when the customer moved into the property. We found out from a third party after foreclosure was started.

Unless state law affects your options, the fact that the loan is not subject to RESPA means that none of the RESPA/Regulation X provisions apply to your foreclosure process, regardless of the fact the owner has moved in.

What about the opposite scenario, i.e. it started out subject to RESPA, but then became a rental property?

Official Interpretation
Paragraph 30(c)(2).
1. Principal residence. If a property ceases to be a borrower’s principal residence, the procedures set forth in §§ 1024.39 through 1024.41 do not apply to a mortgage loan secured by that property. Determination of principal residence status will depend on the specific facts and circumstances regarding the property and applicable State law. For example, a vacant property may still be a borrower’s principal residence.

Thank you for the reference

If it started out as a principal residence and then switched to a rental, you might have a breach of contract at that point if no notification was provided to you.