So you go to the gnome, talk to him and keep going until he asks for a house and the "Any luck?" After that go up to the house and destroy everything. Bushes, rats, grass.. Everything. You'll find a deed. Go to the bank and decline the ridiculous offer, take the house for 200. Go back to the gnome, and wait a bit so he can fix it up. You'll get a lantern that can melt cobwebs, and there's a tower where you melt cobwebs to get a guardian hat, and a unique bomb. Hope this helped.