Remember the factory frames appear grey in color (save for a few hundred very late VIN cars (undercoated cars - done by the company that bought all the unsold cars when DMC folded in 1982 - to hide surface rust that had formed on the cars that sat outside in storage from 1983 to early 1985 when the last cars were finally sold) as their mild steel construction was coated with an epoxy to help preent corrosion. Obviously, this car has seen a lot of bad-weather road use, haphazard repairs, coverups and out and out neglect.
The epoxy generally holds up well, but when exposed to salty roads and leaky brake/cluth hydraulics (which can soften and loosen the hard epoxy, exposing bare metal) it can end up like this.
As the car ages, we'll see more of this, and it is truly is a "buyer beware" world out there. Be an educated buyer and don't let this happen to you.