However, a key element is to have references to link to your local folklore (including simply Wikipedia or similar), just to avoid situations like "my cousin told me this story".
To this part. Is it really that unwanted? I live in a small city and we don't have any articles about our spooky tales, and quite a few of those could make an interesting game. If I were to have some internet sources, I'd need to start researching my whole country, and that would be not as "personal" and local anymore.
If that's an issue, that is totally ok as well. Just wanna know beforehand.