Twenty moderate income families have been awarded the right to buy abandoned city-owned houses in-Northeast Washington as part of the city's effort to recycle old homes to ease the housing shortage.

The 20 families, whose names were drawn Sept. 26 from a brown paper lunch bag, at the Watha T. Daniel Library at 8th and Rhode Island Ave. NW, will pay about $10,000 for the homes and get low interest loans of between $35,000 and $40,000 to finance needed rehabilitation.

The houses are located in the Brookland section of near Northeast and were acquired by the city in the late 1960s when it appeared they stood in the way of a highway that was planned for the area. But the highway was never built because of citizen opposition and the homes eventually decayed.

The 20 homes were part of a package of 30 that were offered to potential homesteaders last spring. Six of those 30 homes will be sold back to former owners or their children, and one house will be sold to its longtime tenant, officials said. Families will be chosen at a later date to buy four of the properties under a federal housing program that subsidizes mortgage insurance and interest rates, city officials said.

Under the homesteading program, the families will make a $500 down payment. Technically, they will buy the homes for $9,500 and $10,000 each, but that money will be borrowed under a deferred plan that required no payment on that loan until the house is sold.

Nearly 600 families applied for the chance to buy the homes, according to city officials. That number was narrowed down to about 90 who were considered eligible on the basis of income and other requirements.

Generally, winners in the program earn between $15,000 and $18,000 a year. Applicants must live in Washington, can't own any other residential property, and must be in households of at least two persons. The home must be rehabilitated within a year and the owners must live in it at least five years, with other restrictions on the money to be repaid if it is sold within three years.

The D.C. Development Corp. will do some of the rehabilitation work in the homes, located on Kearney, Jackson, Irving, Evarts, Hamlin and 9th Streets NE, with private lending institutions providing some of the renovation funds.

"Oh, my God," exclaimed Stanley Goodall, when his name was called to buy 915 Evarts St. NE. Goodall, who is in charge of the mailroom for the Council of Better Business Bureau, later told a reporter, "I feel exhausted. I'm still shook up. As you can see, I'm shaking like a leaf on a tree. It's the first time I've ever been lucky in my life."

Some in the audience won with luck tempered with a bit of smart strategy. Minnie Stokes, a divorcee with two children who works as a general clerk at the main Post Office revealed that when she toured the houses that were going to be part of the lottery, she recognized that a few of them were in much worse condition than the others and probably wouldn't generate as much interest.

So she applied for one of them, and attended the drawing to find that only one other person had applied for the same home. That gave her a 50-50 chance of winning, and her strategy paid off.

"I'm so excited, I can't believe it," Stokes said. "I had faith I was going to win."

D.C. homesteading is similar to a national homesteading program that the U.S. Department of Housing and Urban Development has administered since the mid-1970s.

It was designed to revitalize entire blocks in many inner-city neighborhoods by providing homeownership of HUD-owned vacant homes.