The misplaced modifier (that was late) causes confusion in the student's sentence because it sounds like the teacher was late instead of Keiko's castle project.
A better way to write this sentence to correct the misplaced modifier is, "Keiko handed her castle project, that was late, to her teacher." or "Keicko handed her castle prject in late to her teacher." Both of these sentences make it clear that her castle project was late, not the teacher.
