Officials of Colmar Manor signed an agreement with the U.S. Department of Housing and Urban Development yesterday to repay nearly $600,000 to HUD that was misused or spent without adequate documentation in the 1970s. The settlement makes the tiny town just across the District line in Prince George's County once again eligible for federal money after a scandal four years ago brought development to a halt.

Mayor Joseph Anthony said he plans to sell some city property to developers to meet the minimum monthly $5,000 payments. The city has until the year 2002 to pay the total bill.

The mayor said HUD at one point wanted $1 million, but after 10 months of negotiating and auditing, they settled on an amount HUD considered a combination of misused funds and money that couldn't be accounted for.

"There is no longer a fear of the town going under because of a debt to the federal government," said Ann Heap, an aide to Anthony.

Bernice Buell, area chief of program support for HUD, said "we're pleased they'll be able to begin their redevelopment plans now."

The town of 1,200 is trying to turn Bladensburg Road into a commercial strip that will generate revenue for the town budget, which this year is $221,000.

The first commerical project funded by HUD was a Burger King, in 1979. But after the city sunk $250,000 of HUD's money into the restaurant, HUD declared it a misuse of funds.

The town administrator, George Douglas Beauchamp, misled the mayor and council into thinking the project was legal, according to the town's attorney, Robert Levan. The HUD grant was only supposed to be used to buy or improve property, not to build a commercial building.

In the meantime, Beauchamp, 55, is serving an eight-year sentence in the federal penitentiary at Lewisburg, Pa., for embezzlement. He was convicted of transferring $42,500 of the town's money into his own bank account, leaving Colmar Manor almost bankrupt. He has been in Lewisburg for two years and is eligible for parole in October. The money has since been recovered.

Beauchamp had served 19 months in the same prison after embezzling $1.5 million from a New York credit union in 1971. But the city did not question his record until after checks started bouncing and the police chief discovered the town's bank account contained only $5,000. An audit and FBI investigation followed.

Beauchamp was hired in 1974 as a clerk in the town's municipal offices and in 1977 was promoted to administrator, the town's only full-time paid position. When the paycheck of the police chief bounched, he began investigating. A total of 98 checks bounced, worth $42,500.

Levan said that Beauchamp began as a good administrator, getting federal funds for the town and starting the community development program.

The Burger King stands in the middle of a large piece of land, surrounded by trees and a big, newly paved parking lot. The city leased the restaurant to the Tombrock Corp. from the time it was built in 1979 until it was sold to the company three weeks ago for $314,000.

After signing the agreement at a press conference in the town council room yesterday, County Executive Parris Glendening compared the Colmar Manor's plight for HUD eligibililty to the little engine that could. He praised the council for overcoming "enormous obstacles."

Though there are no definite buyers for the undeveloped land, Levan said, "We're looking to do some heavy negotiating now that the audit shadow is gone."

Colmar Manor has received $9 million from HUD since 1971 and has spent it on the widening of Bladensburg Road, street repair and buying property. The town owns about 85 percent of the land along Bladensburg Road between 38th and 43rd streets, according to Mayor Anthony.