Protect deposit from distressed landlord

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Q: We rent a single-family home from an individual who collected two months' rent -- $9,000 -- as a deposit. We've gotten several letters for her from a bank, and last week a representative from the bank arrived with some legal papers for the owner and asked us to sign for them. We got suspicious, confronted the owner, and learned that she's behind on her mortgage and in danger of foreclosure. Worried about our deposit, we asked if she had it and learned that she has spent it! She claims she's going to sell the house and will have the money at the end of the lease. But with two months left on our lease, we want to tell her to apply our deposit to the rent -- we have no faith that we will ever get it back. She's now pulling rank on us (she sells real estate for a living), and is telling us that we're breaking our contract and she wants us out. What should we do? --Doug P. A: Your landlord had no business using your deposit for her own purposes. Security deposits in many s...