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Since I am a general contractor, let me give the contrary opinion. In the time you have been wondering about this latest revelation, and in less time than you'll spend trying to rehab the old crap and make it look decent, my guys would have yanked the old sheetrock off the wall and replaced it with new sheetrock.
The way I figure it, sheetrock is cheap and mudding and taping new sheetrock goes much faster than fixing old, poorly hung sheetrock. Not only that, but you can make it look better than it does now.
I know it's a garage and you live in California where many people don't finish their garage walls at all but I'd do it right and I'd do it once and be done with it. That includes the "difficult bits" up high, which are essentially no big deal in a drywaller's world.
JR
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