So, Mr. Poe just tells the children that their parents perished in a fire. Here is an exchange:
"'The fire department arrived, of course," Mr. Poe said, "But they were too late. The entire house was engulfed in fire. It burned to the bround.'
"Klaus pictured all the books in the library, going up in flames. New he'd never read all of them."
To be completely fair, on the next page Klaus does find it hard to read books because of his parents' deaths. But the way this passage is written is pretty jarring.