I have good reason to believe that my landlord is aboutto loose the home to foreclosure and he currently has the property listed as a short sale that is not bank approved. He has not notified me of anything that is going on. And has denied the fact that he may be losing the house. What steps should I take to avoid having to leave the house in a short period? Is it legal to withhold the rent payment unless he shows me proof that he is up to date with his mortgage?

Unless you are in California, it is not legal for you to withhold rent. Even in CA its only legal under a specific set of circumstances.

If the bank as instituted foreclosure proceedings, it is likely you will be notified of that fact. But until the foreclosure is finalized, you are subject to the terms of your lease.