If there is fresh paperwork recorded at the county, it is not on our screen yet, which is usually about two weeks behind county recording times
Sometimes a borrower will be told to default in order to trigger a loan modification. You should monitor the situation closely. Owner may be pocketing the rent to cover her own living expenses. Nothing illegal there. But it is not fair to you.
HOWEVER, Michael, whether your landlord is paying his mortgage or not, does not affect your responsibility in paying your rent while you reside in the property. You need to abide by the contract that you committed to and pay your rent according to your lease.
With that said, paying your rent, and having evidence to prove it, provides you certain rights under CA tenancy laws. That includes full right of possession. Should the home go to foreclosure, the new owner would need to provide you with a minimum 90 days of termination. If you have a lease, you may have a right of up to 12 months. In any case, they most often will offer you some kind of incentive to shorten your tenancy and move, or they may just re-initiate a new lease with you. I've often seen the rent payment decreased with the new 'owner' especially if it turns out to be Fannie Mae.
While i know this is disconcerting, I would suggest you lower that anxiety by speaking with someone in the legal profession to understand the CA tenancy laws. There is a free service at the County courthouse, or you can contact an attorney of your own choosing. Last, would you be interested in buying the home should it actually go to foreclosure? You may have the opportunity as the tenant to buy the home and not have to deal with competition....but that's another topic... In any case I think the situation might warrant some opportunity for you. Hope it works out well for you.
Especially if someone wants to do something sketchy like skim rent. Even if it is a rarely enforced law, it is bad Karma, bad Juju, and I put a voodoo spell on anyone who does it intentionally.
If that's the case, there's a good chance that the owner has fallen off on making the payments and the lender has filed the paperwork to start the foreclosure process. I think you should contact the owner and discuss this with him/her and let them know that it's important for you to know where you stand. Also, you can contact the county you are in and see if there is any foreclosure paperwork filed with the county for that property. The seller has up to 6 months to cure on a loan which is in default and the lender can not foreclose until after that 6 month period. Many times the lenders don't actually foreclose for a much longer time period, depending on how many properties they have in this situation so you may not have to worry about it for a while but it's still important that you know. You have that right as a renter.
Good luck with that and if you would like more help on finding out, I may be able to do some research from Colorado to find out for you.