If the listing agent is communicating with the bank, this should not happen, but unfortunately, sometimes it does. You can sometimes tell how close they are to foreclosing by checking the tax record for a filed sale date. My recommendation is to get that thing closed as quickly as possible.
New legislation that impacts what actions can be taken by short sale lenders has been passed in California but does not take effect until Jan. 1st of next year.
Your Agent is 50% correct regarding the "Dual Tracking" problem in CA. There is an Assembly Bill in the works to rectify the issue.
"AB 1745 (Torres) Dual Tracking â€“ Currently, the banksâ€™ ability to simultaneously process a short sale and a foreclosure on a single property has resulted in the foreclosure sale of homes which have an approved short sale pending. C.A.R. is sponsoring AB 1745 to prohibit a lender from proceeding to a foreclosure sale against a property if that property has been approved for a short sale. This measure will still allow the mortgagee to withdraw its short sale approval due to a change in the conditions under which the approval was granted. The lien holder would be required to provide a written notice at least 3 days before the withdrawal of approval explaining the reason for the retraction.
My understanding is that the Bank can foreclose on the property at any time up to the Recording date.
Now that being said if the Owner's of the property have applied for one of the Short sale programs like the Home Affordable Foreclosure Alternatives (HAFA) Program, once the Bank(s) agree to this program then the foreclosure process must be halted.
But remember the Banks must agree(in writing) to this and the Listing Agent that represents the sellers should have this information.
Always the Best,