Once you have completed all of Step 1, go to Dage at /underworld (simply walk towards the bottom-right) and purchase the Undead Warrior armour for 1200 ACs from the Armour shop. Then, complete the following quests from Dage. I recommend doing it all within 24 hours so that you can sell the Undead Warrior armour for 1080 ACs, making the cost of joining the Legion just 120 ACs.
"Undead Champion Initiation"
Defeat the Black Knight NPC at /greenguardwest (quickly access by going down from /arcangrove).
"Mourn The Soldiers"
Defeat the following:
Skeletal Soldiers at /doomhaven.
Chaos Drow at /dwarfhold.
Fishman Soldiers at /pirates.
Dwakel Soldiers at /willowcreek.
"Understanding Undead Champions"
Defeat the Undead Champion at /battleunderb. You may want to join a group for this.
"Player vs Power"
Turn in the Combat Trophies that you pre-farmed.
"Fail to the King"
Defeat Alteon's Knights at /prison.
Now that you're in the Legion, you can sell the Undead Warrior armour to any shop. Also, check out the Legion Tokens guide to see what you can get now.