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If it was me, and if I'm understanding what's going on right, I'd get my kids out of that den as fast as ever I could. I might contact someone on a more regional or national level while I was at it. But I wouldn't for anything want my youngsters under the authority of such a cruel and domineering personality.

The only thing that could make me stay would be having confidence of winning the war against that lady that would be necessary if I kept the kids there.

Best of luck.
You're a good mom, so I'm sure you'll get it worked out, one way or another.