Legal Question in Landlord & Tenant Law in California

I was looking for a guest house to rent, I found one in Lake Elsinore for 700.00 a month with a 500.00 deposit and 150.00 for utilities. I told her that I needed to be out of the property that I short saled on 5/31/10 she said give her the deposit of 500.00 and the place would be mine and she would let me know when the old tenates were out .on 5/10/10 I gave the landlord who showed me the house the 500.00 for the deposit. She called us and said The old tenants moved out on 5/30/10 so the place needed to be cleaned and painted and there was visiable signs of roaches and she made no mention of spraying for the bugs so I told her before I moved in I will have to Spray it, on 5/3110 I sprayed the outside of the house and the shed she had asked me not to spray inside the house because she needed the clean and get it ready for me to move in and she was alergic. So on 6/1/10 she left me a message when was I going to give her the rent money I text her I will give her the money when the place was ready and that date will be my move in date. at around 11:51pm 6/1/10 she stated that it only need 30 mins more to clean and now she was'nt going to paint it so she said it would be done for the 6/2/10 take it or she would have to give to others who were interested. I told her fine we will paint it if she supplied the paint so on 6/3/10 I told her I would bring her 700.00 for the rent she stated no it's 850.00 for the utilities too I told her why are you asking for the utility moneies up front cause she was'nt billed upfront for them I haven't used any. she said thats just the way it is so I told her I would have to borrow it so on 6/4/10 at 10pm I had the money and I took it over to her and at that time I was able to Get inside the house to spray for the bugs thats when I saw a lot of roaches so I sprayed and on 6/6/10 34hrs later I brought a truck load over to start moving in but when I went in still alot of live bugs every where. I was disgusted I left my things on the patio table I was not going too put my stuff in that house and I went to buy foggers I set off 4 foggers then I left till the next day on 6/8/10 My husband and I went to paint the inside the house and still bugs crawling in the frig and inside the stove and the place still was not cleaned everything was dirty I called the landlord up and asked to to come back to the house so I can speak to her she said I can talk to her on the phone so I explained that she needed to have a professional pest control come out cause there was still bugs everywhere and she also needed to finish cleaning the place as it was not ready and I asked if she could retro us because the place was'nt ready and or liveable in yet she got angry said no to the retro after her and my husband argued the said we can take it as is or she would give us back our 850.00 and leave but not the deposit we told her we just wanted was was right so we said we would get back to her later that day we texted her with our answer we would leave so we took our things off the patio and then we called her so we can pick up our money but she had shut off her phone so we went over to get it then she told us to take her to court and shut the door. what should I do now? I know this is long but I don't know how to explain it any other way. Thank you Retha

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