State Lunatic Hospital at Danvers
These places are old (not TOO old... Danvers, pictured above, didn't close until 1992), in dangerous shape and should have been demolished ages ago. The peeling paint, rusting pipes, decrepit medical equipment and rotting floorboards are visual reminders of what happened here. It doesn't take a psychiatrist to tell us why these places are scary.
First off, they're abandoned. Without a handy piece of paper telling us WHY the grounds were left behind, our minds will tell us all kinds of deliciously nasty stories about the place and what happened there. We don't need proof. Proof just wrecks the storytelling and there are people that will take advantage of that to make a buck in the form of horror movies or haunting tours or what have you. A buck I will gladly pay because I like scary storiesANDJUSTTAKEMYFUCKINGMONEY!!
There's a fixer-upper...
Second, they were mental hospitals. Mental illness is, in and of itself, a terrifying thing. To not have any control over yourself is something that any sane person should be afraid of. As a bipolar individual, myself (and being one of the few people I know to have ever experienced a psychotic break), I know how helpless I felt and the thought of being admitted to one of these places during their heyday, where I would have been even more helpless and vulnerable, scares me shitless.
We hear stories even now of the abuse that goes on in care facilities and it just seems unfathomable that it was allowed to happen in the first place. Sexual abuse by the orderlies, solitary confinement, padded cells, straight jackets, being left to sit in one's own waste, being put on display for the entertainment of the masses (granted, those last two weren't common after 1900 or so). Even some of the "treatment options" just sound diabolical. Electroshock therapy, the ice-pick lobotomy (thought to have been discovered at Danvers), insulin-shock treatment, forced sterilization, Metrazol, Thorazine. All in the name of keeping the mentally unstable within wrangle-able parameters. All with a pretty heavy body count.
Not a fish-eye lens, huh? Welp, time for my drugs.
Now, in horror movies, even fully functioning hospitals are places of disease, germs, needles and death so you can imagine how an abandoned hospital is going to look, particularly a mental hospital. As long as film makers can get the look right, our minds will take care of the rest. Fortunately, they don't have to work too hard in a lot of cases.
Just looking at Danvers, it's been the inspiration for a lot of spooky stuff. It's believed that Danvers is the inspiration for HP Lovecraft's Arkham Sanatorium (which, in turn, was the inspiration for DC Comics' Arkham Asylum) and Danvers is referenced by name in Pickman's Model. The asylum was featured in the 1958 film Home Before Dark and the 2001 film Session 9, one of the most brilliant movies ever made, was actually filmed in Danvers State Hospital before it was renovated into Avalon Communities. (Just FYI? The central building was basically kept intact for the refit.) The video-game Painkiller featured Danvers as well in a level named "Asylum". The outside of it, anyway. And the World of Darkness "Mage: The Awakening" role-playing game setting used the hospital as the base for a clan of Tremere vampires who were feeding on the patients.
I'm a little concerned about the red stuff...
Suffice it to say that the abandoned mental hospital isn't just a symbol of societal entropy. It's also a reminder that our minds are not always the safe havens we think they are. When some dumbass says "Hey let's split up" in one of these places, it only increases isolation and, as we all know, isolation in horror movies is a bad thing. Here, we're not necessarily talking about just a monster, though, we're talking a possibility of a full-on psychotic snappy-snap.
Also, inevitably, a main character will have some kind of connection to the place that they may or may not have been aware of or shared with the class. Blood Night; The Legend of Mary Hatchet is a perfect film example.
All in all, though, I think I like this trope because it is a reminder that we are not living in the dark ages of mental health treatment, anymore. We still have a ways to go, but the mad have a little less to fear.
And we're all mad, down here.