Another fine mess you've gotten yourself into! What is with your home game???
There were a number of errors here, but the blame mostly lies on the dealer, IMO. There are places that do indeed muck exposed hands when there is still action left, but I personally find that stupid in Heads Up situations, and I'm glad most places don't do that. If you are thinking about making a big call after I've gone all in (or if I am thinking about making a big call after YOU have gone all in), I WANT to be able to show you a card and mess with your head or get a read off of you, as the case may be. Fortunately, most places allow this. At the WSOP, you get a 10 minute penalty for it, but your hand is not killed.
It sounds to me like you guys handled the flop correctly. The true error came on the turn. The action was still on you when the dealer went ahead and dealt the river card. He shouldn't have done that without you either calling the 400 or folding your hand. You have to act. He apparently thought your nod equalled saying the word "fold" but I don't believe that it did. You either need to say "Fold" or you need to muck your hand.
So................ what should have been done? Well, the river card was dealt prematurely. The action should be back on you to decided if you are going to call the 400 or not. If you decidd to fold, so be it. The hand is over. If you decide to call, the burn card stays on the board, but the river card is picked up and shuffled back into the remainder of the deck. Then a new river card is dealt and we see who wins the hand.
I'm not 100% certain, but I'm pretty sure that's the correct way to handle that mess.
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