My speculation, spelled out:

1. The bike came with 27" wheels, with brake pads properly positioned.

2. A 700c wheel was then installed (as a replacement for a stolen wheel, perhaps [Edit: or, maybe more likely, after riding through a pothole with full body weight on the saddle, resulting in a damaged rim]), without moving the pads. [Edit: notice that the brake pad is at the bottom of the slot, which often indicates a wheel swap from 27" to 700c.]

3. Pads abrade the 700c tire, naturally.

4. Someone noticed that the pads were abrading the tire and repositioned the pads without replacing the tire.

That the wear is the result of riding the bike with the tires severely under-inflated is a possibility too, of course. But the exposed white thread seen just above the brake pad in the photo looks to me as if it was the result of abrasion from the pad.

In any event, the tire should be replaced as soon as possible.