Has anyone seen a rear tire on a car do this before?

It looks to me like broken suspension issues. This car s NOT safe to drive and is probably illegal. If you notice, the tire is turned forward.

Do Not Drive this car have it towed to a shop for repair. If you are a capable DIY'er and have the necessary tools get under there and fix it. No one can tell you from looking at that picture what's wrong till the care is on a lift or jacked up for a proper inspection.

the visible rust indicates neglect and failure of a steel component

SWAG: bad control arm, either upper or lower, or trailing arm. Knowing make, model, and year could help us see what positions the wheel.

A shop that does a lot of suspension work will do a visual inspection and give you a quote for free - you don't have to get the work done there.

Yeaah... there are several possible causes, only one of them is good. That being, when you lower a car and have fat rims/tyres, some people adjust the camber so the wheels tuck in at the top so they still fit under the wheel arch on full bounce and comply with laws saying the tyre shouldn't protrude past the metalwork. If that's not what's going on here, then something is bent, broken or needs adjusting.

Broken rear suspension spring.