The "Witch of Soleanna" rumor.
Kingdom Valley used to be a zone lived by dukes, duchesses and important priests until 200 years ago, when the most important castle of that area was taken by a mysterious woman. The noble families who lived inside the castle moved to Soleanna Old City since then. Kingdom Valley is an "off-limits" zone, even in CWAU. No one, not even Elise III, can go through the mysterious forests and decaying ruins.

Why?

According to rumors, this witch is known to take whoever gets closer to her home and do the worst possibile things to them. These rumors managed to become true, in fact whoever tried to have an adventure in Kingdom Valley never returned back alive to tell about her existence.
Some people believe it is this mysterious woman doing these atrocities, some believe these tourists just lost the way and died trying to return back.

Nobody knows the truth, right? Well, not really.

It is said that G.U.N. has got images of this woman, but they won't confirm nor deny her existence to the Soleannians because that would increase their curiosity to visit the ancient castle. Not only that, G.U.N. don't want to do anything with her in first place, if she exists that is.
Even the nobles of Soleanna may know something about this witch. Old notes and stories about her arrival are hidden inside the royal library where Elise The Third lives.

Not so horror, but the witch of Soleanna is also used as boogie man to little kids if they misbehave.

"If you aren't nice, then the witch of Soleanna will snatch you!"

A lot of older Mobians remember a time when the Mystic Mansion was just a tourist attraction. It was a museum, where families would visit and learn about the history more morbid moments, alongside spooky sciences like levitation, optical illusion, and the natural decay of life.

Functioning as an asylum before then, it featured a morgue in a system of caves beneath the ward, so when people would begin seeing apparitions and witnessing strange incidents, rumors of real-life hauntings spread like wildfire.

Eventually people stopped going to the place, and the curator took a tumble deep into the mines where he wasn't found for years....

The place remains standing to this day, but is strangely untouched by time. Everything appears in its proper place, and not so much as a roof shingle has fallen off in all these years--despite no one being there to look after the place. Nowadays, its widely assumed to be haunted by the curator, who is completely benign, so long as you respect the museum and everything in it.