Many people might think this was a bit extreme, but if it were my tree (as small as it still is, as messed up as it is, and in the location it is in), I would probably consider removing it and starting over. The bark came off of the wounded area, not because of disease (at least not directly), but because something had damaged that part of the tree (likely resulting from the loss of the limb missing from the lower stub). That same wound extends above the top of the second picture and appears to go all the way up to the stub I just mentioned. The tree is trying to cover the wound over. Hopefully (especially if you decide to keep the tree), it can do so before rot develops. I don't agree with what Dan said, at least the way he said it, regarding the direction of the wound. Orientation of the wound may impact the trees ability to effectively cover it over, but many other factors are also involved. Normally, if it were my tree and I decided that I was going to keep it, I would begin addressing the lower branch with the bad crotch immediately, BUT in this case, I would do as Dan says and wait. The reason I would be hesitant to do it now has nothing to do with the toughness of the tree or my ability, or lack there of, to address the situation, but instead because removing (or even slowing down the growth of) that lower limb would likely significantly increase the time needed for the tree to heal over the wound. Without growth to that limb, that side of the wound will not have the ability to heal (effectively the wound would be much larger). Reducing that limb would be an option (kind of a compromise between doing nothing and total immediate removal), but I'm not sure it would be the preferred solution (because of the wound). Basically, there is no perfect solution, and you'll just have to weigh the options.

Could be that they are planted too deep? Root flares should be exposed instead of like telephone poles.

The 'fungus' is actually lichen. Completely harmless and completely unrelated to the die-back. There are many things that can cause a lilac to die-back. In your case, large mature stems of common lilac are particularly susceptible to lilac borer. Stressed trees are also more susceptible to the borer...how much salt does your DOT put on that road behind the lilac?

I'm pretty sure that's blight, especially if you already saw some in your orchard. I lost a tree to blight this year. I caught early signs of it in 2016. By 2017 it had spread almost as bad as yours, and the tree just never leafed out all season. When I tore the tree out of the ground, the root system was rotten and non-existent, and full of orange goo.