I rented a house in NJ on a 6 month lease term. The term expired and automatically renewed as month-to-month lease. I gave a notice by end of February to the landlord to vacate the apartment by the end of March. Within a few days, I spoke to the landlord again and told him that I won't be vacating. He agreed. Since then I have been paying the rent regularly.
I just discovered that I can use the security deposit as rent since the landlord didn't give me a notice to security deposit within 30 days (after receiving my security deposit). So, I sent him a notice stating that I'm going to use the security deposit as rent for June. Now, he is retaliating. He sent me a notice (improper with factual errors and no landlord's signature) stating that I need to vacate by the end of May (less than 30 day notice) as I already gave him a notice to vacate. He is threatening to take legal action and charge me with attorney fees and not returning the security deposit if I don't comply. Can he evict me now? Am I liable to pay double rent for all these 3 months?

First notice to vacate: in writing?
Retraction of notice: verbal. Always a mistake in any rental situation.
You were given your security deposit back, possibly by an office person who had only the written notice to vacate to go on?
And then you open this huge can of worms, you couldn't have shot yourself in both feet any better, by saying you are using that check for RENT??
You are wrong on all counts, but he is wrong in that he can't evict you after changing your mind, especially since quite a bit of time has lapsed. But you are month to month, and he can terminate your tenancy by giving notice now for the end of June.

You will still be liable for any and all damage to property, and expect him, to look for every small item to charge you for.
So be sure and do a walk though and have any and all damage signed and documented prior to turning it over to them.

Also be sure according to the terms of your lease ( you are still bound to the terms of it as for as notice and rental agreement. The only difference is it is now monthly, so if the lease stated a 60 day notice to vacate you will be bound to it and all other terms. Also did the lease itself when signed note receipt of the security deposit,

You may have tried to be somewhat "foxy" with them on using the security money toward a last month rent and find it is going to bite you big time. I would say a very bad move to a landlord who appears to have been good and fair with you up to this point.

http://dc.findacase.com/research/wfrmDocViewer.aspx/xq/fac.%5CDC%5C2004%5C20040805_0000144.DC.htm/qx states that there is a common law rule - a landlord waives a notice to vacate when he accepts rent for a period extending beyond the expiration of the notice. I also find a similar statute in NJ law NJSA 46:8-10. I'm not sure whether it is applicable in my scenario or not.

I agreed that he can't use your notice to vacate. But he can end your month to month tenancy.

I don't see how you can't see why a landlord who was so agreeable when YOU changed your mind wouldn't be really angry when you then want to take advantage of a technicality about security deposits.

I also don't see any percentage in getting on the wrong side of a landlord who wasn't doing anything wrong.

If you want to stay there, would it kill you to say you didn't mean it, here's my security deposit back?