You can't safely block the flue. Most of the bigger-deal tankless water heaters come with electric resistant-heaters to limit the freeze-up potential, but even those aren't foolproof. (They're pretty foolproof in a CT climate, not so much in central Saskatchewan.)
The Marey 16L shouldn't be hooked up to a masonry chimney in a CT climate, especially if there isn't a boiler or furnace hooked up to the same flue. At the low intermittency of hot water use and the cooler exhaust of near-condensing 86-87% burner the masonry will run cold, and there will be excessive flue condensation which will be slowly destroying the chimney from the inside out.
It also shouldn't be hooked up to B-vent (double-wall galvanized exhaust piping), since that too will be destroyed by condensation within 5 years even in more temperate climates, (probably sooner in CT).
See the "Venting Guide for Marey Heaters" section.
If you insulated your basement it would never drop to 50 degrees, probably never drop below 60 degrees, which may be enough to make the difference should you decide to resurrect the Marey and use $tainless venting (as it needed to be all along). Even if you decide to cut your losses on the Marey and move on to something else, a 50F basement is still a huge heat loss to the house when it's 15-20F outside, and no insulation between the basement and the great outdoors. Insulate it to current code min the basement indoor temp will rise, but the losses will be cut by more than 90%. There are some details to get right to avoid creating a mold farm, but it's not particularly expensive to do it right.[/QUOTE Thanks for your reply. The basement temp sits at 50-60 and it is air tight from a lot of caulk and weather stripping. I found and ordered a 5" high wind back draft damper for the exhaust vent pipe but it is not a complete seal. THEN I found out thru some research that what is happening is that my oil furnace when it is running is probably pulling the fresh air it needs thru my 5" vent pipe. This seems to be a common problem even with the big bucks units with freeze prevention electric heat coils. If my unit was used a lot rather than a couple times a week MAYBE it would not freeze up but I doubt it. I'm not giving up just yet but it sure is getting expensive. My unit is a Natural draft unit so sealing it off is not an option. Maybe a small portable electric fan heater under it blowing up into it would keep from freezing but electric rates for my commercial rated meter at the shop
(last month $.77 a KWH !!!) will kill the whole tankles idea. I wonder if I could wrap water pipe heat tape around the coils? How hot do the coils get when these thing run?