I've never seen a fp built into the foundation of a house before.

Is it below-grade?

What is the chimney built from? (Probably metal on the outside of the house.)

I'd have concerns that it meets Code. The fact that it has clearly been used and the home hasn't burned down is not proof it's safe.

You could screw a wood mantel/surround to the concrete block, tile the block up to the firebox, and plaster the rest of the block beyond the mantel. You could tile or plaster the entire wall right up to the firebox. Is there some reason you must frame out the wall?
Anything you can frame in wood, you can frame in metal, but a 4" thick wall added all around the fireplace is going to look odd, IMHO. There are thinner metal framing alternatives, like 1" metal z-track, nailed to the block with a ramset/hilti/powder-actuated nail gun.
Casey

That would work. But I'd still have that fp checked out for safety.

The chimney assembly contains 3 stacks for two fireplaces and the furnace. The second fireplace is in the living room directly above the fireplace shown in the picture.

I don't have to frame the wall I guess. The wall is rather thick I think as it contains 3 stacks so there shouldn't be much of an issue with heat transfer.

I'm not really good with real plaster so to plaster an entire wall sounds hard to me. I think our neighbors, who have the exact same house, have a large brick buildout including a hearth that runs the length of the wall. I didn't want to do that as it's rather large.

What if I framed in wood up to 12" from the box. Then filled in to the edge of the box with metal framing. Then covered the metal framing with 1/2" durock. That would line up with the 1/2" drywall over the wood studs. Then I could tile over the durock?

Is that crazy talk or does it seem like it would work?

Or I could use the 1" metal z-track across the entire wall and cover with durock round the firebox and drywall the rest of the wall. Then tile over the durock. That sounds easier.

I'm framing up a fire place that is almost exactly like yours. In the basement, but mine is in a corner that doesn't even give me 12 " from the corner to the fire brick opening. My plan was to frame around the opening leaving only 6 inches of boarder (12 on top) that I will tile. Like you I don't want a large cold stone wall on one side of the room. I'm going to insulate the fireplace wall with stone wool insulation. I was planning on installing an insert into the fireplace in the future which needs only 2 inch clearance from the wall to make it "legal". What did you end up doing?

The surface required to be noncombustible can be the existing brick wall or a tile, stone, or other noncombustible surround adhered to the brick. 3/4x12x12 granite/marble/travertine tile would be a good solution.

Beyond the restricted distance from the firebox, combustible trim can project from the face of the masonry according to the ratio of width to depth described in the code.

Don't ignore the rules for a hearth if you add one.

First find out what building code is in effect in your area.

The 2003 IRC says:

R1003.11 FIREPLACE CLEARANCE. All wood beams,
joists, studs and other combustible material shall
have a clearance of not less than two inches (51 mm)
from the front faces and sides of masonry fireplaces
and not less than four inches (102 mm) from the
back faces of masonry fireplaces. The air space shall
not be filled, except to provide fire blocking in
accordance with R1003.13.

Exceptions:
1. Masonry fireplaces listed and labeled for
use in contact with combustibles in accordance
with UL 127 and installed in accordance with
the manufacturer's installation instructions are
permitted to have combustible material in
contact with their exterior surfaces.
2. When masonry fireplaces are part of
masonry or concrete walls, combustible
materials shall not be in contact with the
masonry or concrete walls less than 12 inches
(305 mm) from the inside surface of the nearest
firebox lining.
3. Exposed combustible trim and the edges of
sheathing materials such as wood siding,
flooring and drywall shall be permitted to abut
the masonry fireplace side walls and hearth
extension in accordance with Figure
R1003.12, provided such combustible trim or
sheathing is a minimum of 12 inches (305 mm)
from the inside surface of the nearest firebox
lining.
4. Exposed combustible mantels or trim may
be placed directly on the masonry fireplace
front surrounding the fireplace opening
providing such combustible materials shall not
be placed within six inches (152 mm) of a
fireplace opening. Combustible material
within 12 inches (306 mm) of the fireplace
opening shall not project more than c inch
(3.2 mm) for each one-inch (25.4 mm) distance
from such an opening.

6003.10 MANTEL AND TRIM. Woodwork or other
combustible materials shall not be placed within six
inches (152 mm) of a fire-place opening.
Combustible material within 12 inches (305 mm) of
the fireplace opening shall not project more than c
inch (3.2 mm) for each one-inch (25.4 mm) distance
from such opening.

I was talking to a chimney inspector the other day about negative pressure from fireplaces. He said he knew of a house with a chimney in the basement that caused quite a lot of issues with negative pressure in the house. It didn't help that the house also had a radon remediation system that was drawing air already from the basement. Make sure to talk to someone who knows how to calculate whether there is enough fresh air for your fireplace. Just my 2 cents :-)