Dale, the creepy neighbor (who we see in the opening as a boy whose mother got killed), has the power to breathe life back into dead people. Josh comes home to make up with Sarah and Dale finds him, dresses him like creepy Dale, and when Sarah comes home with a gun to kill Dale, Sarah accidentally kills Josh. She tricks Dale into breathing into her mouth and, despite a fight with him, breathes it into Josh bringing him back to life since she accidentally shot and killed him. Dale continues to fight with both Josh and Sarah. Eventually, Sarah shoots and kills Dale... and then everybody he brought back to life dies horribly the way he had killed them, dropping dead where they stand (in the grocery store, in their homes, on the street, etc.). Last we see Leslie, dead, sitting next to the baby (fathered by Dale) who is still alive.
Sarah and Josh (Katie Walder and Matt Passmore) are a couple who live in the suburbs. She wants to have a baby and is in grad school. He works as a croupier at a casino and is hiding from his wife that he's sterile. They have a creepy neighbor, Dale (Nathan Keyes), who lives in. In the beginning of the movie, a teenage Dale is seen with his pet bunny listening as his parents fight and his father eventually kills his mother. At the end of this, Dale's mother is miraculously revived.
Sarah finds out from Dale's mom that he brought her back to life after Dale's dad killed her. Dale's mom knew he was messed up - because he kept molesting/raping/killing girls he liked and then bringing them back to life instead of learning social skills - but couldn't bring herself to kill him so she kept trying to kill herself. Dale kept bringing her back so she doused herself in gas and light herself on fire in front of some cops hoping to either die or be institutionalized (which is where Sarah found her - an institution.)
Sarah discovers that Dale has been raping her, murdering her, and bringing her back to life. In the course of this he got her pregnant (her husband Josh is sterile so he thought she was cheating) and she and her friend Leslie (Laura Gordon) figure out that he had been doing this to Leslie too until she got a dog and the baby she is having is actually Dale's. When Leslie has the baby and it's not black or Asian like she thought it would be (they make a joke about this early on in the movie) it's Caucasian and we later find out what Dale's done.