I agree with all the other posters, only I would do this:
First TELL (not talk to) the friend that the behaviour is no longer accepted and that you intend to enforce the rules of your house. This gives your friend a word of warning that her child will be disciplined if she doesn't behave. You can say " I know you do things differently but She is setting a bad example for my children and I will no longer tollerate it. I am happy to watch her for you but THIS is whats happening from now on"
Then when Mummy drops daughter off, while mummy is at the door you say to the little girl in front of mummy. "We have new rules here, any bad behaviour will result in time out (or whatever) and X and Y's toys MUST stay here from now on"
This way you are saying something to the child in the presence of the parent so She knows that Mummy knows.
Follow through despite tantrums - your house your rules.
If you have to search her bag for toys or pry them from her fingers do it - I am sure your income is not so disposable to be supplying your friends children with all the toys they want. You guys work hard to buy things for YOUR kids, they stay in your house.
As for getting the little Miss her own stuff DON'T do that! You get her parents to buy the toys why should you supply that little brat with her own set of stuff?
Man I want to smack the parents of that kid!
HTH Nae x
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