An undead civ could be interesting, but it doesn't mesh well with FFH lore. What motivation does an undead have to found a city? They don't eat and they don't reproduce. Also, making them Fallow kind of encroaches on the Infernals' uniqueness.
It's not the undead themselves that are founding cities. There will be a sentient leader, probably a powerful necromancer or lich, that is guiding the 'civilization.' You don't really need to tie deeply into lore for why they exist (not like Os-Gabellah's wanting to end her immortal life by bringing around armageddon, for instance). Hell, you can even say Barbatos is the leader, and he just wants to make everything dead. Then undead.
Since the civs of FFH and fixed and these new empires will be purely modmod'ed, encroaching on the uniqueness of Infernal isn't really a concern, especially if they use a different method for increasing their cities (like getting mane-type units from kills or pillaging that they need to bring back to their capital, rather than getting them directly in the capital after razing evil cities).