Because I am not a real estate attorney, I can't comment on the legality of the rental agreement, because I am not qualified to give legal advice. However, the intention of the agreement assumes that the landlord will be using your rent payment to make the mortgage payment to the bank. He has clearly not been doing so, probably not for several months. He has been pocketing your rent, but not making the payment to the bank. Because I sell many bank-owned properties, my responsibilities include speaking with tenants of recently-foreclosed properties all the time. It's not fun. But what I can tell you is that I have never spoken with one that got their deposit back from the landlord. If it were me in that situation, I would demand the deposit money back and take the landlord to small claims court to enforce it if necessary. However, your thought of not making a payment because the house it about to be foreclosed on in 7 days seems very reasonable to me. If you are still under your lease contract period, then he should have given you 60 days. I wouldn't make another payment until I saw a mortgage statement showing no delinquent balance if I were you (though that clearly won't ever happen on this house, I'd bet). Chances are that sometime shortly after 6/15 a real estate agent will knock on your door to inform you that the bank now owns the home, and begin negotiating for a voluntary vacancy. Which means you might as well start looking around for another home to rent, unfortunately.
Hope that helps,
The Lewis Team at Prudential California Realty