You said that idea was a worn out one. I wasn't offended. I like to cover things from my own perspective. It gives it charm.

 Regarding your question, I'll describe a few options and tell you why I chose them.

 Panic disorder with hallucinations. In this case, everything can be built up into a detective story with a touch of Lovecraft. It can be played in quite an interesting way. Chosen because there are many ways to distort the sufferer's perspective. Great for suspense as well as unexpected twists. 

Audience favorite, schizophrenia. Not understanding what's going on, combined with stress, can knock anyone out. The good thing about this variant is that you can do anything. The consciousness that perceives hallucinations as reality gives you unimaginable scope for action. If the first option would make you shut yourself off from the world and feel relatively safe, this one is not so gentle. You can't hide from schizophrenia. A person will go deeper and deeper into their world. This is a dungeon crawler you can theoretically get out of on your own. 

Traumatic brain injury is not a disease, as the name implies. Probably whatever caused the death of the breadwinner also caused this complication. I would say this is the worst of the options. There is no cure, there is a way to suppress the symptoms. The good thing about this option is that now what's happening is real for the exposed person. Help is needed, so the person can realize the surrealism of what is happening. There are many ways to realize this. The main difference is the understanding of the nature of what is happening.

You can also use the unnamed disorder in the same way. Don't go into too much detail, and just use it to reveal the plot. It's lazy, but it's a perfectly viable option. I think I would choose it, not because of laziness, but because you can create your own hodgepodge and not be afraid to make mistakes in small things. Absolute creative freedom.

 As for the reason for the public reaction, there could be several possibilities. For example, if he did experiments on people, the end justifies the means. Or, for example, it turns out that this man was involved with a notorious organization. Or it turns out that he was not at all what he was seen to be, for example, a criminal who managed to escape from the state services in his time, but the amount of time elapsed in conjunction with the non-participation does not allow the government to somehow influence the property left behind.

 As for the nightmare, the approach can also vary. I will describe what I would do myself. Distortion of the world, where the building itself tries to swallow those who live in it, a living nightmare, shadows that try to take the place of the heroine and change her personality if she does not resist them, non-Euclidean geometry, endless corridors, completely changed rooms that become analogues of nightmares. For example, a cellar turned into a torture chamber. A swimming pool turned into a religious place for occult sacrifices. Things like that.

That's about right. Well, I'm just providing pieces of the puzzle that can be neglected or replaced with something of your own. I hope this answers your questions at least a little and is somewhat useful.

And previous idea, a family is hired to take care of a hotel near a small town, like in the movie Shining. The difference is that they're not cut off from the rest of the world, they have access to this town... It's not that important.