Burned-Out condo stuck between insurance gaps and tenant rights

Larry Rothchild, 51, bought a two-bedroom unit in the One Sunset Park Condominium in 2015. The building burned down six-and-a-half years ago and now sits at 702 44th Street in Brooklyn like a skeleton, but Rothchild is still paying around $2,500 a year in New York City’s property taxes for an apartment in an uninhabitable building.

He described his taxes as paying for “New York City’s air” on top of legal and new living expenses since the fire.

“We’re paying for a home we can’t live in,” said Rothchild. “This is our equity, our down payments, our savings. This was our home.”

Legal disputes, high rebuild costs and tenant obligations have made the burned-out condo a tough sale. Photo by Chrissy Wang

Six-and-a-half years after an unattended candle ignited the condo in Sunset Park, people found themselves trapped in a rare legal dispute. An insurance shortfall helped derail plans to rebuild, and a separate lawsuit from rent-stabilized tenants has complicated efforts to sell the property. Any buyer would be legally bound to honor rent-stabilized rents for 17 tenants who say they have a right to return.

“It was like hacking a path with a machete through the jungle,” condominium board general counsel Theresa Racht said.

The apartment has still not been rebuilt because New York’s Condominium Act requires a supermajority vote when a building is severely damaged. If more than 75% of a condominium is destroyed, reconstruction must be approved by at least 75% of the common interests.

Just over a quarter of the owners, with their votes weighted by their share of the building, voted for rebuilding. According to court documents, this decision was driven by the estimated reconstruction cost of nearly $25 million, far exceeding the maximum insurance payout of $8.2 million.

Homeowners sued the condo board, alleging it didn’t follow a legal requirement to carry property insurance equal to at least 80% of the building’s replacement cost, leaving the building underinsured and creating the coverage shortfall.

In response, the board says it obtained the required insurance in good faith and within its authority under the bylaws, invoking the business judgment rule, which generally limits court review of board decisions made in good faith and without self-dealing.

After the reconstruction plan failed, the owners voted to pursue a court-supervised partition and sale. However, an auction in November 2023 failed to generate interested bidders.

Any potential buyer will inherit all pending lawsuits, as well as any claims to continued occupancy of the building made by tenants.

In a separate lawsuit, rent-stabilized tenants from 17 of the 54 units are seeking to assert their “right to return” to the building once it is rebuilt. They argue that under state law, their leases do not automatically terminate due to fire or a vacate order.

"Right now, really, everything is in an appeal posture. And we are attempting to move forward with the sale of the building in the partition case,” said Janice Goldberg, litigation counsel for the One Sunset Park Condominium. “We are just focusing on trying to see if we can settle this one lawsuit with the tenants that are represented by BLS [Brooklyn Legal Services].”

Separate from the tenant disputes, One Sunset Park is also facing a separate fight over the building’s replacement cost. A court filing cites three different estimates of what it would cost to rebuild.

One report concluded that a full rebuild would cost between $25.2 million and $26.9 million. Another report estimated that the building’s replacement value at the time of the fire was only about $7.5 million, or roughly $10 million adjusted to present value (excluding the cost of individual units and depreciation). A third estimate report stated that the reconstruction would cost approximately $17.3 million.

With estimates so different, the question of whether the building was adequately insured has become a factual dispute that remains unresolved.

As a result, in September 2024, Kings County Supreme Court Justice Kerry J. Ward denied the board’s motion to dismiss the owners’ insurance lawsuit under the business judgment rule.

To date, there has been no court ruling determining that the building was underinsured.

The court issued a second order of sale on Dec. 5, 2024. The timing of any future sale or auction is uncertain, but negotiations are ongoing with a prospective buyer, according to Racht.

Because the tenants’ right-to-return claims have become a central obstacle to any sale, the court has paused the partition case and directed the parties to prioritize settlement talks.

“We have been in settlement negotiations with the rent stabilized tenants,” Goldberg said of the ongoing talks.

Eleanor Whitney, 44, who has since moved to Yucca Valley, Calif., owned a unit at One Sunset Park and lost her cat, Crackers, in the fire.

The burned-out building looms at the northeast corner entrance to Sunset Park. Photo by Chrissy Wang

“To me, it’s so sad because it’s literally on such a prominent corner in the neighborhood and it's just sitting empty. And that's housing that the city desperately needs,” said Whitney. “I still wonder what it would be like if I still lived there.”