Do you know for a fact that the bank's short sale department is in sync with the bank's foreclosure department? I haven't seen this happening once, not a single time. I wouldn't count on the bank not foreclosing because there is a short sale offer on the table.
The laws that protect tenants against an owner who doesn't apply rent towards the mortgage first are the rent skimming laws. Start at http://www.leginfo.ca.gov and look up civil code 890.
To answer your other question, yes a seller can decide not to accept any other offers and take the home off the market so the bank only reviews your offer. Why would they do this and risk your offer not being accepted and then they have to scramble for another offer. Your offer would have to be really strong for me to tell my clients not to look at other offers. I have to agree w/ Dyanna and advise you not to lease this property because you'll just be throwing your money away. Allow for the lender to find out the property is vacant and they'll speed up the process so that they can get rid of this property.
Please can you also answer the question - can the seller decide not take any other additional offers or accept any other additonal offers?
Alexendra - I thought that while there is a short sale in process Countrywide wont forclose on the property. It costs them a great deal of money to foreclose.