At what point during combat to discard Santa monsters after using Sanity Clause?

[HPepersack]

The family and I were playing Munchkin Holiday mixed with Legends and my daughter kicked in the door to receive the Molar Express, to which three of us obliged by adding 2 regular monsters and one more Santa monster. At the point we thought she couldn't beat the monsters in play, she played Sanity Clause, thus discarding the 2 Santa monsters, including Molar Express. My husband thought that playing Holiday Police after this move could keep the discarded monsters in play by turning them into non-Santa(much like a wishing ring invalidates a curse). My question is: At what point do the Santa monsters get discarded? Immediately? or after other cards are allowed to be played out? If immediately, would then the other monsters be discarded as well since Molar Express is not in play and there are no wondering monster cards present? Thanks for your input.