The end of the first movie, Mike and Jody had just defeated the Tall Man and you see Mike look up to his brother cheering in victory. Mike then opens his eyes, revealing that perhaps all of the events in the movie were just Mike's dream. Reggie is still alive but Jody had apparently died in reality in a car accident prior to the movie.
In the third film, Tim finding the picture of Reggie and his family, who were killed in the previous film. Reggie sees him looking at it, and without a word spoken Tim gets how much it affects him and puts it away.