Having survived an assault by the Durst house's décor, the party decides to sleep in the house. Upon waking, Thud spontaneously becomes a bear, and everyone does that one trust building exercise in which they share the dreams they've had about murdering each other. You know the one. Anyway, after the party listens to each other talk about their dreams and aren't intensely bored by it, they determine that the dreams must have supernatural origins.
Resuming exploration of the house, the party discovers the ghosts of the Durst family children—Rosavalda (or "Rose") and Thornboldt (or "yeah, you get it")—who tell them how they died: their parents locked them in their room while they had a "grown-up party" downstairs. Then a man (one who, according to Thornboldt, is on the region's money!) arrived in a black carriage, stormed the house and killed the grown-ups, leaving the children to starve to death.
(On a lighter note, the children inform the party that "Is no fun, is no Blinksy!" is the slogan of a toymaker in a nearby town.)
The children—who have been very lonely for a very long time—panic when the first company they've had in many years tries to leave, and decide to go along; Rose possesses Grey and Thorn possesses Tom. Brenna ends the possession by depositing the childrens' remains in the crypt in the basement. Grey and Tom are left conflicted by the experience.
The basement turns out to be significantly larger than the house and also infested by a grick, which the party eliminates.