At least the ghosts aren't foreigners

Prepositional phrase placement is important. Sometimes you can get away with separating constituent elements, but sometimes you can't. Like here:

The desired reading is "believed by locals" but unfortunately the embedded clause has a verb that also takes "by" as a complement - "haunted by". And since English tends to run left-to-right and government by the nearest is a thing, the reading this is going to get is not "believed to be haunted" and "believed by whom" but "believed to be haunted" and "haunted by whom".

Such a simple rewrite to remove the structural ambiguity! "Believed by locals to be haunted".