We open on Gus confronting Shawn about the money he owes him for the weekend retreat Shawn took Juliet on. Shawn says he's desperately trying to earn money to pay him back, but casework has been scarce. Gus suggests that Shawn sell the engagement ring he never gave Juliet. But Shawn isn't having it; that was his grandmother's ring, and besides, he wants to keep it just in case.
Lassiter calls Juliet telling her there's been a suicide at the Prospect Gardens, a Santa Barbara condo building. Shawn shows up at the crime scene hoping that there is a case for them to solve so he can earn money to pay Gus back. But unfortunately for Shawn there appears to be no foul play and therefore no case.
Upon taking a closer look at the condo, Lassiter surprisingly says he wants to buy it and move in. In fact, Lassiter does end up buying the place and several weeks later, sends out invites for his house warming party.
Lassiter first meets his neighbor Amy, a nurse who is very welcoming. She also tells him about Lloyd, the building manager, and how he takes care of the rats. Lassiter tells Amy that he's a detective for the SBPD and that he is going to do background checks on everyone in the building just to be sure he's dropped his nest egg on the right place. Amy likes Lassiter's "get things done" attitude and asks him to get Lloyd to replace the awning on the building. Lassiter agrees.
Lassiter loves his new place, however, he hasn't been sleeping due to the strange noises and creepy occurrences that have transpired since moving in. In fact, Lassiter is so creeped out by the new place that he hires Shawn and Gus to investigate the disturbance. From Lassiter's story, Shawn and Gus believe that the place is haunted and immediately agree to take the case.
Shawn and Gus show up at Lassiter's condo at 6 PM that night dressed in Ghostbusters attire. Their plan is to stay the night in Lassiter's condo to investigate any possible disturbances.
Shawn and Gus are first greeted by Lassiter's neighbors: Amy whom Lassiter was previously introduced to, a yuppie couple, an old Korean war vet and Beatrice and Birdie, the identical 70 year-old twins Lassiter believed to be ghosts standing in the hallway the night before.So far, Shawn and Gus do not see anything suspicious, which in turn drives Lassiter crazy. The guys spend the night at the condo, and to Lassiter's shock, end up sleeping like babies. However, in the middle of the night, Lassiter is awoken by the sound of his imprisoned girlfriend Marlowe's voice. Knowing she couldn't possibly be there with him in the condo, he gets out of bed to investigate the noise. He walks into the bathroom to discover the shower has been turned on. He then stares at himself in the mirror, but doesn't recognize himself. He's wearing a beard and is confused beyond belief. The next thing he knows, he's back in bed, getting yelled at by Shawn and Gus, telling him to get in the bathroom because the light fixture has mysteriously filled up with blood.
The next day, Woody has the blood analyzed and discovers that it doesn't belong to a human, but to an animal. This puts Lassiter's mind to rest; a rat must have gotten stuck in the attic and died. That explains the blood and the noise.
Shawn and Gus are not convinced, so they follow a lead to the yuppie couple's condo to see if they were staging a haunting in Lassiter's condo so that they could buy it and expand their own condo.
The yuppie couple lead ends up being a dead end, so Shawn and Gus pay a visit to the building's manager, Lloyd. Shawn and Gus approach Lloyd's place just as Amy is leaving it; she was there asking Lloyd for another repair. When Shawn and Gus enter Lloyd's place, they are met with a mess. In fact, the place looks like a hoarder lives there.
Shawn and Gus tell Lloyd they believe that someone is trying to scare Lassiter out of his condo. To their surprise, Lloyd says that he agrees with them and that he knows who it is. Lloyd tells them he believes Condo 536 is cursed, saying every sound man that has moved in there has ended up going crazy. He believes the curse is within the walls of the condo.
Shawn and Gus go to investigate the past residents of Condo 536. They find a name, Ray Brauer, a guy who lived in 536 before Lassiter and before the guy who killed himself, who ended up losing his mind and leapt to his death from his bedroom window.
Juliet finds another bit of creepy information about Prospect Gardens: the architect of the building killed his wife then himself many years ago. Shawn and Gus have trouble believing all of this, but change their tune when they see Lassiter sitting alone in his condo, wearing a monocle and a maniacal look on his face, staring at a TV that is nothing but static.
Shawn and Gus know they need to get to the bottom of this or Lassiter will indeed go crazy. So they head back to see Woody who tells them that both of the previous tenants dead bodies had the psychoactive "amyl nitrate" in their systems at the time of death.
This leads them to think someone in the building was doing this to these men on purpose. They're now back on Lloyd, who would have access to everyone's apartment. They go to his place and discover that he is a kleptomaniac; he even stole one of Amy's paychecks. Then they discover a small bottle of what could be amyl nitrate in his belongings.
Gus then goes to Lassiter's condo to check up on him. Sure enough, Gus finds a jar of nitrate permeating the condo.
Just then, Lassiter emerges from his bedroom looking crazy. Gus tries to tell him that he has figured out that someone has been messing with his place, but Lassiter is too far gone all ready. He instead blames Gus and Shawn and says they are the ones trying to make him crazy. The fight escalates into Lassiter chasing Gus with a sword in hand. Lassiter chases Gus into the basement. Just as Lassiter is going to take Gus down like he's Jack Nicholson in "The Shining," Shawn charges in and saves him. Then they discover Lloyd's dead body in the basement.
Later, Lassiter is in recovery mode, still unsure of what happened. Since they know that the killer isn't Lloyd, Shawn flashes back a paycheck he saw earlier in Lloyd's apartment, a check he had stolen from neighbor Amy.
Shawn and Gus head to Lloyd's place to see the piece of mail. Upon opening it, Shawn discovers that this isn't a paycheck and that Amy lied about being a nurse. She, in fact, is a patient, and the envelope is a bill from her psychiatrist.
Shawn approaches Amy and accuses her of murdering Ray after he rejected her romantically; she also killed the next tenant in 536 after he rejected her too. She pumped amyl nitrate through their vent which eventually drove them crazy and lead them to what appeared to be their suicides. She used the building's creepy history to explain the 'haunting' each man reported, and she was doing the same exact thing to Lassiter until she got caught.
Amy knows she's been figured out, and tries to escape. She runs up the stairs to the roof and Shawn and Gus try to track her down. Once they arrive on the roof, she is nowhere to be seen, until Shawn and Gus turn their backs to see she is charging at them. Shawn and Gus duck out of the way and Amy goes flying off the roof. To everyone's shock, she lands on the awning that Lassiter had Lloyd fix and ends up surviving the fall. The police are waiting for her at the bottom of the building and arrest her the second she comes to.
Days later at the Psych office, Frank, Juliet's father, arrives asking Shawn about the strange message he received from Shawn a week ago. He had been in Tanzania and wasn't able to reconnect until now. The message Shawn left for Frank was about Juliet. Shawn tells him that he had plans to propose to Juliet, but didn't end up doing it. But since Frank is here now, he asks him for her hand in marriage for future purposes just in case. Frank tells Shawn to call him when he's actually ready propose, and that they will talk then.