What do you think caused Stella's father to regard her as dead?
Salzman, the marriage-broker, has been in some way disappointed by his daughter, Stella. It is likely that he put the picture of her in the envelope for review by Leo in the hope that Leo would choose her, since Leo is a young rabbi.
Salzman tells Leo that she is "wild, without shame" and insists that she would be all wrong for Leo; she is materialistic, as Salzman says, and "for her to be poor was a sin." It seems to be a ploy using reverse psychology, and it works. Leo becomes obsessed with Stella, and when at last he meets her, he sees by her red shoes and cigarette that she might indeed be a bit wild, but her dress is white and her eyes reflect a certain innocence.
The reader is left to assume that Leo will try to redeem Stella as her father, around the corner, chants "prayers for the dead," presumably including the daughter who is metaphorically dead to him.