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In the Pre-Alpha build of the game, a Nightmare sequence can be seen by getting caught by the Neighbor. You will wake up in your room, standing atop the bed. A giant Neighbor will bend down and look at you through your window and will reach his hand inside and grab you.
In Alpha 1, the only Nightmare sequence is after you get caught by the neighbor once. You will get a cutscene of the Neighbor walking over to the basement door and walking inside. After the sound of a car crashing plays, the Neighbor walks out of the basement wiping his hands.