<human>: Me, my husband, my dad and my stepmother all live together for the time being because we fell on hard times. We live in a small apartment complex and we're in the house at the very end.

My stepmom and I both smoke cigarettes and go out onto the balcony/Pateo several times a day. When we go, we have to walk past our neighbor's [70s/m from title and his wife] glass doors and windows. Their curtains are ALWAYS closed (this becomes important later on in the story).

The neighbor is a weird guy, but my opinion of him has been fairly neutral. He's most known for his drinking. When he's drunk he's very talkative and brings over food and drinks. My stepmom said that he weirded her out because he likes to dress up as Santa and ask people to take pictures with their children. I always thought he was just kind of sad about not having children/grandchildren.

Two days ago my stepmother was making me mixed drinks (she's an ex bartender) and we were going out onto the balcony to smoke and chat a lot. On one such a trip, I was surprised to see that my neighbors curtain was wide open. Well, he was laying on a bed or a couch, faced towards the window, naked and playing with himself.

Keep in mind that nobody besides my mom and I ever walk past that window, that the curtains are always closed, and that there is no way we could've NOT seen it cause we have to walk RIGHT past the window. 

My stepmother has been livid. I initially brushed it off, but she's very, very upset that 'my kid had to see that', even though I'm okay.

My dad and my husband are upset, but she feels like they're under reacting.

What the neighbor did is a crime in our state. I suggested telling the landlord or writing him, so that if it happens again, we'll have a paper trail. 

Am I overreacting or under reacting? We are now very uncomfortable in our own home and I can't face my neighbor or his wife anymore. What would you do?

Can you give me the gist of the text in a nutshell?
<bot>: neighbor exposed himself to stepmom and I. We feel uncomfortable and are unsure of what steps (if any) to take next.