Huge Perils of Buying in a Condo Conversion

Sunset Park Fire Sale Fails, Leaving Condo Owners and and Tenants Empty-Handed

A hoped-for auction failed last week for a charred husk of a Brooklyn building, in the latest misfortune for former residents scattered to the winds while still paying mortgages and taxes.

BY CLAUDIA IRIZARRY APONTE AND SAMANTHA MALDONADO DEC. 8, 2023

Eight years ago, Max Plyshevsky moved into a light-filled two-bedroom corner apartment in Sunset Park.

It was the first place the divorcee owned by himself. It was his haven, with room for his daughter when she came to visit. He invested his savings into the fourth-floor condo and figured he had a nest egg.

But in April 2019, all that went up in smoke when a vicious fire tore from a top floor apartment through the entire 54-unit building, leaving the highest three floors exposed to the sky and displacing all residents.

“It’s on the list of one of the biggest things that’s ever happened to me. Like having a child, it’s a major, major event that redirected the course of my life,” Plyshevsky said.

Plyshevsky, 47, a former software developer who lost his job following the fire, now lives in a single-wide trailer in the Hudson Valley, where he shops at Walmart, hikes with new friends and burns wood for heating.

And he continues to pay the mortgage and property taxes on his burned-out Sunset Park condo.

“I basically own air space in New York City, and I keep paying for it,” said Plyshevsky.

A sale of the ruined property would allow him to stop paying on the vacant apartment — a sale he and owners of three dozen other destroyed condo units in his building had hoped would take place last week, in a scheduled auction at the Brooklyn county courthouse.

A sale would mark the beginning of the end of a years-long saga that changed the course of his life and those of his former neighbors.

But the Nov. 30 auction, with a minimum bid of $9.5 million, brought not a single bidder. It was the second time that the property had failed to sell, with the wrecked state of the building and a lawsuit from former renters hanging over any future owner.

Eleanor Whitney, 42, a writer and marketing professional, bought her condo, on the building’s fifth floor, in cash in 2009. She thought she’d found her forever home in Brooklyn and had no plans to ever leave the city. But she lost that assurance in the fire, along with her beloved cat, Crackers.

The auction’s failure now means continued uncertainty and no financial relief.

“It’s this ghost that follows me around,” Whitney said, “and reminds me of this home and this future that I can’t have.”

Scant Insurance Coverage
Standing across from Sunset Park, the building still had 17 rental apartments dating to before its conversion to condominiums. All the rentals were rent-stabilized or rent-controlled and occupied by longtime tenants, who lived side by side with owners who had paid as much as $800,000 for condo units.

The fire, and a resulting lawsuit from tenants, have thrown the renters and condo owners into opposition.

While the homeowners are eager to sell the building and unburden themselves of property taxes and mortgage payments, the tenants are battling in court for what they argue is their right, under state law, to force both the condo owners and the owner of their units to repair the building and welcome them back.

The derelict six-story building still stands on the corner of 44th Street and 7th Avenue, at the southeast edge of the park after which the neighborhood is named.

Four months after the fire, in July 2019, the tenants sued their landlord, the condominium association representing the homeowners and the city Department of Housing Preservation and Development, demanding repairs and that the owners pay to relocate tenants.

The condominium association representing the individual homeowners, some of whom had poured their life savings into purchasing their homes, said they simply could not afford to do so.

The building was also terribly underinsured, with hazard insurance policies with a maximum coverage of approximately $8 million — far below the building’s estimated $38 million value before the fire, or the approximately $26 million it would cost to rebuild, according to court filings.

The fate of the building — and its former residents — has been tied up in the court system ever since.

Speaking of both the displaced homeowners and tenants, condo general counsel Theresa Racht said in an interview with THE CITY: “There’s a lot of pain and loss here. Everybody lost.”

Plyshevsky, who has been living on his dwindling savings, said the ordeal changed his values.

“I was forced to really simplify my life. The thing it made clear to me is there’s no financial security,” he said.

The condo owners had hoped Brooklyn Supreme Court Judge Debra Silber held the keys to freeing them from their financial burden, after a possible sale fell through over the summer.

Because the building was held in joint ownership, the court had to grant permission to sell it. Once sold, the proceeds can be distributed among the owners. Without this so-called partition action, all the owners would have to coordinate in order to move forward.

With the failure of the auction Silber ordered, now the condo owners along with the entity that owns the rental units must decide what to do next. One option is to lower the minimum bid and try again for an auction, with the judge’s approval. But complicating matters is the judge’s expected retirement next month.

Jeffrey Saltiel, a real estate litigator with 20 years of experience in partition sales appointed to referee the case, said that he’d never seen a case as complex as the one surrounding the Sunset Park building.

“What’s really unusual is, normally a partition is a one-to-three family building with multiple owners,” he said. “In this case, you have a building that used to be a condominium of 54 units that is now a 54-family building.”

Mourning Pets
It took 100 firefighters more than a day to get the five-alarm fire under control against 30- to 40-mile-per-hour winds. Ultimately, 23 firefighters, five police officers and four residents were injured in the blaze, which also killed 13 cats and one dog, according to court papers.

The fire department determined that the cause of the fire was accidental and originated from an unattended candle lit next to a window curtain on the sixth floor.

Some of the building’s displaced residents struggled to rebuild their lives in the aftermath, crashing with family, friends or living in hotels for months afterwards.

Marcela Salazar, 68, is one of the tenants who sued the sponsor and the condominium board to force repairs and allow them to return to the building. After living in a hotel for six months immediately after the fire, she moved two separate times before finding her current Section 8 rental in the neighborhood.

She, like all the other tenants in the building, lived in a rent-regulated unit — a classification that under state law grants them wide protections, including from eviction in case of fire damage.

Silber previously dismissed the tenants’ claims against the condo owners in a March 2021 decision, ruling that “[t]here is no duty which runs from the condominium board of managers to the tenants.” She also ruled that the building was so destroyed that it was “de facto” demolished — a classification that allows landlords to deregulate buildings, which would bar the tenants from returning.

The tenants, who are represented by Brooklyn Legal Services, appealed that decision the following month, and the matter is still ongoing.

Whether the building changes ownership bears little difference to the tenants because, according to the terms of sale, the buyer would inherit any pending litigation surrounding the property — and the tenants’ ongoing claim to return to the building, according to their attorney Jooyeon Lee.

The tenants’ legal team will need to convince an appeals judge that the building — which is still standing, albeit without a roof — is not dilapidated enough to meet the threshold for demolition and deregulation.

If Silber’s March 2021 decision deeming the building effectively demolished is upheld, the tenants face an uphill battle to return to their former homes, though they may negotiate a buy-out or other form of compensation.

Salazar told THE CITY last week that she has given up hope of ever returning to the fifth-floor apartment she called home for three decades.

She passes by the building often while walking her dog Juju, and still gets emotional remembering Princess, her beloved Shih-Tzu who died in the fire and whom she described as her “baby” and “the love of my life.”

“When I go to the old neighborhood — I go there often to go to the park to walk the dog — I see they haven’t done jack to that building,” she said. “I see that building every day and get depressed.”

That the property includes rent-regulated and rent-controlled units — to which tenants may have a right of return — makes for a worse bet, two real estate investors told THE CITY.

“That makes it pretty complicated,” said Eli Tabak of The Bluestone Group. “If the rent in those units were $800 or $900, it’s kind of like you’re buying units you’ll have to carry expenses for and not even have income on it to be able to cover those expenses.”

Whitney, Salazar’s former next-door neighbor, was unable to stay in New York.

“With the prices of rent and real estate and mortgage rates and not having the capital I’d put into the condo I owned, it really wasn’t possible to stay in New York and live a financially sustainable life,” she added. She’s been paying property taxes on the unit and keeps a liability insurance policy, just in case.

When the pandemic hit and Whitney’s job went remote, she moved to Yucca Valley, California — a decision that she didn’t make easily, as it took her away from the community she spent two decades building in New York.

“The fact is, this is not Plan A. This is not what I was really wanting for my life at this point,” she said. “There’s some sadness in it, even though I’m grateful.”

kind of a perfect storm of several contributing factors, but the glaring "crime" is the under insured amount. Who was responsible for and who decided on that policy

>Who was responsible for and who decided on that policy

the sponsor. you can't blame the individual purchasers, except for having made the decision in the first place to buy, hence title of this discussion topic

Yet another anecdote, albeit an extreme one, demonstrating that buying in New York City is not appropriate for anyone who cannot weather a loss in capital. I would be curious to see the discount that purchaser receive for conversions. This story suggests that the discount should be steep enough that there will always be takers. I also noted that this was a condo conversion, which raised a question in my uneducated mind as to whether there are coop conversions, and whether a coop conversion would have come out differently. Off the top of my head, I am thinking the result would have been the same with the sponsor controlling the board and not insuring the property. It seems like there should be some breach of fiduciary duty here; why wouldn't the banks who were providing the mortgages have caught this? Why aren't mortgage holders walking away from their mortgages? Total stream of consciousness here, so these may be dumb questions, but they are the ones that come to mind.

@MCR

I disagree that buying in NYC should be any more or less inappropriate for anyone who cant weather a capital loss. Owning a home and using that home as a store for whatever portion of the family's nest egg has long been a core tenet to the american dream (or illusion) and should be no different in NYC.

BUt my god there is nothing dumb about your questions, your first should scream out in everyone's head. How on Earth are any bank(s) that were involved in any lending into this building not on top of the insurance requirements.
As to the mortgage holders not walking away, Id guess their personal liability and leading to exposing their other assets or personal bankruptcy being the deterrent to walking away. At least for now.

A co-op conversion might have come out differently, as the bank providing the loan to the coop for the purchase might have required insurance in order to help secure recovery of their funds. Were this building only owners without sponsor control, the outcome could be different - they might have identified the low level of insurance and gotten a better policy.

But, it's a good reminder: If you live in a co-op or condo, do you know what sort of policy the corporation carries, what it covers, and for how much? A fun question for the next annual meeting.

I don't doubt they are still within their rights, but I'm still stunned by the entitlement of the rent controlled tenants in this situation.

why? This all goes back to the sponsor. There's no reason why the sponsor's behavior should impact the rights of the rent regulated tenants.

@Rinette
THe sponsor owns only I assume just the 17 rent controlled/stabilized units

I wish I didnt go down this rabbit hole but I looked up and skimmed the condo declaration

According to the condo dec, the condominium board is responsible for ;

(ix) to obtain insurance for the property, including the Units, pursuant to the terms of section 5.4 hereof

(x) to adjust and settle claims under insurance policies obtained pursuant to the terms of section 5.4 hereof ,and to execute and deliver releases upon such adjustment and settlement on behalf of
(a) all Unit owners (b) all holders of mortgages and other liens on Units and (c) all holders of any other interests on the property

(xi) to make, or contract with others, for the making of repairs, maintenance, additions and improvements to, and alterations, restorations, and replacements of, the Property after damage or destruction by fire or other casualty................

And section 5.4 is called Insurance and reaffirms all the conditions and responsibility for comprehensive coverage of ALL the Units. (my copy and paste isnt working and its too much to type)

Now of course, we know how lawsuits work, it names everyone remotely associated with assets. But the condo board appears to be the front line.

for those who want to read themselves, i picked unit 3a and went to the condo declaration

on acris block 741 lot 1003

That's informative, and doesn't change that the rent regulated tenants should not have their rights eliminated by action or inaction, negligent or otherwise, by another party. Their rights can be restored with money, unless ... bankruptcies. It does suck.

Thks for the responses to my questions. It is interesting to me how real estate ownership was once the path-to-wealth/the hallmark-of-the-Amercian-Dream and is now something else.