Often, loan modifications and short sales department works separately from the bank's legal department. Depending on the bank (different banks have different rules), loan modifications application (as well as the short sale one) can even stop/delay foreclosure, if done the right way.
However, in some cases, banks are very aggressive, and they may foreclosure even though the owner applied for the loan modification, especially as this is not a principal residence (I assume you are a tenant in this house).
If your landlord has an attorney, then you can ask the landlord's permission to talk to his/her attorney and find out what is going on. You can also hire your own attorney to protect your rights.
Normally, foreclosure lender honors the lease that is in place.
So, if the loan modification info is not true - you do have some protection there...
Best of luck to you!
Hope this helps,
Beachfront Realty, Inc.