For nearly two years, 98 Anchorage homeowners have been trapped in a shared nightmare: Call it the $7 million mistake.
Half of them lost their homes in a sensational fire that destroyed the northern half of a downtown condo complex.
The rest, living in the southern units that escaped the blaze, grudgingly face the prospect of forking over tens of thousands of dollars each to help rebuild their neighbors' homes.
Besides entwining the financial lives of the residents, the aftermath of the June 2007 Park Place blaze has meant nearly two years of refugee living for the burned-out owners, most of them retirees, and a quagmire of frustration and litigation as everyone tries to limit the amount they will have to pay to rebuild the condos.
"The whole thing was certainly tragic and mishandled," said Leonard O'Hanley, a land surveyor who lost his condo and many of his belongings in the fire.
"There's nothing but blame to go around," he said.
The four-story building that burned has become somewhat of an eyesore in downtown Anchorage, residents say. In the weeks after the fire, work crews gutted its interior walls and flooring, built a temporary roof and boarded up the windows.
The building has stayed that way for the last 21 months. Today, it looks like a half-finished construction project stuck in a coma, waiting for a miracle to bring it back to life.
Everyone admits that this sorry state of affairs could have been avoided. The root of the problem was a $7 million to $8 million shortfall in the condo association's insurance coverage -- a flaw in the policy that never should have existed, according to the condo association's board.
Who's legally responsible for the mistake -- the condo owners, their insurer or their insurance broker -- remains unclear. The condo association is suing the insurer and broker. Some condo owners are considering suing the condo board for negligence.
But unless the dispute is resolved in Park Place's favor, it looks like the owners -- those still living there and those displaced -- will have to finance the massive insurance shortfall out of their own pockets.
What makes everything worse? About six months before the fire, many people at Park Place received a letter explaining that their homes were probably under-insured. In a January 2007 letter to homeowners, the condo board even spelled out what it saw as a reasonable solution: Fix the bylaws at the annual meeting in October.
The fire happened in June.
THE HUMAN TOLL
Jean Parsons, 78, was putting on her shoes to go for a walk when the fire alarm sounded. Another drill, she thought. She grabbed her purse at the last moment, thinking she'd buy some coffee at the City Market across the street.
It was windy that day. As the fire -- lit by a stray spark from a welder's torch -- raced through the building, Parsons watched with the other horrified condo owners huddled in the nearby Inlet Tower Hotel parking lot.
She didn't know at the time that the fire was just a harbinger of the headaches ahead. Even though she had monitored some of the proposed changes to the condo association's insurance coverage in 2006, she was shocked by the severity of the condo association's insurance shortfall.
Thanks to the insurance snafu, the association is missing about half of the roughly $14 million needed to deal with the fire's aftermath and restore the north building.
Picking up the pieces, Parsons rented a condo in the undamaged south building. She was lucky because she had her own insurance policy that covered her rent for two years, she said.
But those two years are up in June. The looming expense of rebuilding Park Place couldn't come at a worse time: Her nest egg has shrunk, thanks to the stock market dive. She pays $600 per month in condo dues, plus mortgage payments on the destroyed condo.
When June rolls around, "I won't be able to afford the rent I'm paying, plus condo dues, plus the mortgage on the building I can't live in," Parsons said.
According to the condo association's calculations, Parson's share of the cost of rebuilding the north building could be $72,000. The condo association says it hopes to recoup that money eventually by winning its lawsuit against the insurer and broker. But the future seems terrifying.
"It keeps me awake and very stressed," she said, struggling to hold back tears in a recent interview.
DESTITUTION?
Depending on how and when the dominoes fall with the lawsuit and the levying of extra payments on all the condo owners, some elderly people on fixed income say they might end up in dire straits.
"It's upsetting, but is there anything we can do about it?" said Jean Kaufman, 90, who lost her home in the fire and now rents an apartment in Spenard.
"I hope I don't have to go back to work. I don't know who would hire a 90-year-old," she said.
"It's every member's fault. We should have been on our toes," she said.
The association recently sent out letters showing Park Place owners how much each might need to pay to cover the shortfall in the insurance policy. The proposed extra payments, called special assessments, average $75,000. The unit owners with the most square footage would have to pay the highest amounts.
"I'm sure each of you is asking, 'How in the world can I possibly put that amount of money together so quickly, and can I even afford it,' " said a March e-mail from the condo board to the owners.
The e-mail provided some advice, including that the payments could be made from "numerous sources such as cash savings, sale of investments such as stock or bonds, sale of personal property, other real estate, gifts or loans from friends or family and various mortgage products."
The condo association also hosted sessions in which counselors from local nonprofits talked to unit owners about reverse mortgages, low-income loans and other financing options.
Condo owner Tom Tomasi, who rented out his unit until the fire, was not impressed with the board's suggestions. He said his credit has already been ruined: When the Valley mechanic stopped receiving rent on the destroyed unit, he fell behind on mortgage payments, he said.
That could make it impossible for him to qualify for a new loan, he said.
THE ERROR
The Park Place fire should be a reality check for thousands of Anchorage residents who don't carry enough insurance to cover the destruction of their homes, local insurers said.
Though total losses are rare, 80 percent of the structures in Alaska aren't covered for their full replacement cost, estimated Herb Schlereth, a longtime State Farm agent in Anchorage.
The fire had some serious ripple effects for condo associations around the city, said Crystal McDonald, an Anchorage property manager. She knows of 15 condo associations that upped their premiums in reaction to the Park Place association's troubles, she said.
So what exactly went wrong at Park Place?
In 2006, the Park Place condo association put its insurance policy out for bid and selected a $14.5 million policy from Fireman's Fund. The policy was supposed to cover a potential loss of both buildings -- the exterior and the interior units, excluding the owners' personal belongings.
The cost of the fire was estimated at about $14 million to $15 million, but Fireman's Fund paid $7.6 million, citing a clause in the policy that allowed the reduced payment.
Before purchasing the policy, the association received assurances that it did not include this clause, called "co-insurance," and its existence wasn't divulged to the board until six months before the fire, John Tolley said.
Today, half of the $7.6 million is gone. Park Place spent it on site cleanup, reconstruction plans and other expenses.
The association also netted a small legal settlement with the local plumbing company whose employee, an unsupervised apprentice, accidentally set the fire.
But the condo association still faces $10 million to $12 million in rebuilding costs and figures that it needs another $7 million to $8 million, a shortfall that the 98 Park Place owners fear will come out of their own pockets.
The association is suing Fireman's Fund and its insurance broker, CHI of Alaska, over the co-insurance snafu, saying they breached their duties under state law. The companies should fully cover the reconstruction costs, the association says.
Both companies declined to comment for this story, citing the pending litigation.
Tolley said the co-insurance mess could have been avoided with a simple change to the association's bylaws that would have made condo owners -- not the association -- responsible for insuring their own units and any improvements such as new cabinets or hardwood floors. The board scheduled a vote on the proposed change for the October 2007 annual meeting.
If the bylaws been revised before the fire in June that year, the association's out-of-pocket cost of rebuilding the north side of the complex would have been dramatically lower, he said.
THE BIG BILL
The aftermath has strained many relationships between neighbors in Park Place. Not surprisingly, quite a few owners are upset with their condo board too.
"It's clearly a board responsibility that (we) have adequate insurance," Parsons said.
Felix McGuire has been scrutinizing the board's decisions since the fire. He and others who own units in the south building are concerned about how the condo board is spending the dwindling pot of money from its insurance proceeds and the plumber's settlement.
"We're not trying to stop the building. We want fairness and an accounting," said McGuire, whose share of the rebuilding cost might exceed $82,000. He doesn't have any insurance to cover that. He had just purchased a unit and had not moved in when the fire happened.
One of the items that irks McGuire and many others in the south building is the requirement that the association pay for any upgrades that condo owners have made to the fixtures in their units: such as Berber rugs, granite counters or recessed lighting. These critics say the renovation plans for the north building are just too expensive.
"I bet they are going nuts over paying for other people's remodeling," said O'Hanley, the surveyor who lived in the burned building.
But, O'Hanley said, "I haven't seen them complaining about (us) still having to pay our condo dues."
UNCERTAIN FUTURE
There's a survival-of-the-fittest aspect to the Park Place situation.
A few owners obtained generous personal insurance policies that cover any special assessment, so they might not have to pay a dime out of their pockets to restore Park Place.
Those who didn't -- and there are many of them -- face the equivalent of a brand-new mortgage.
O'Hanley was one of the lucky ones: A year before the fire, his insurance agent sold him a policy that included extensive coverage for a special assessment and property damage.
"I've become a poster boy for State Farm," he said.
What happens if people can't pay for their special assessment?
Many Park Place owners said they doubt everyone will be able to foot their share.
Tolley said that if a condo owner defaults and loses a unit to foreclosure, the association can attempt to make the foreclosing bank responsible for the special assessment.
If someone owns a unit free and clear but refuses to pay the assessment, the board could end up with the unpleasant task of foreclosing on that unit, he said.
The board scheduled a vote on levying the special assessments for mid-April and had hoped to start the construction this spring. Fifty-one percent of the unit owners must approve the assessments.
But recently, the board decided to delay the vote until late May while it looks for answers to roughly 70 legal, insurance and construction-related questions asked by condo owners; plus, the board is still looking for a bank to lend money to start the rebuilding, Tolley said.
Tomasi, the landlord, said he's called the governor and other Alaska elected officials to find other ways to finance construction.
He even called the national TV show, "Extreme Makeover: Home Edition," which fixes up homes for families in desperate straits. A show representative told him that they only make over single-family homes.
Tomasi said he's running out of ideas. The experience at Park Place has taught him at least one thing.
"I will never own a condo again."
Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.
Slide show: A look back at the 2007 fire
Photos: The Park Place condo saga
Video: A walk-through of the condominiums
By ELIZABETH BLUEMINK
ebluemink@adn.com