In the beginning, Fatima Zein couldn't have been happier. After years of wanting to own her own home in the District, the retired secretary had made that dream come true. She had even found a government housing program that made easy-term loans to help low-income residents fix up their houses.

Today, however, the 65-year-old widow faces foreclosure after falling behind on her mortgage payments. Where Zein started out talking of skylights and rose bushes, she ended up owing the District government more than $102,000 -- part of which came from a loan the city now says was a mistake -- while making only $46 a month.

And the house she longed for stands vacant and vandalized, an embarrassing mark of failure for a program designed to help rehabilitate decaying neighborhoods.

Zein blames the agency for getting her in debt and then abandoning her. But D.C. officials call her situation an "aberration," only the 12th foreclosure they have ordered during the last year and a half for all its programs, including the one that made $1.1 million worth of rehabilitation loans.

Wherever the blame lies -- and there is plenty to go around -- this is certain: Zein is losing her house, which cost her $44,500 five years ago, even though the D.C. government spent that much and thousands more to help her keep it.

"We bent over backwards to help her," says Oliver Cromwell, spokesman for the city's Department of Housing and Community Development (DHCD), where Zein's case has generated a thick file of documents spanning four years.

Zein's quest for home ownership started out promisingly. Pooling resources with her daughter and a cousin in December 1978, she bought a three-bedroom brick house in the 1100 block of Irving Street NW. A back injury had left her unable to work since 1974, but with about $600 a month in disability, she could swing her third of the $442 monthly mortgage.

Zein lived in the basement of the house, trying to fix it up a bit at a time, through most of 1980. Then she went to the city about a program she was told would lend her money for the renovation.

On Nov. 6, 1980, she and her co-owners signed a federal Housing and Urban Development rehabilitation loan agreement to borrow $54,000 at 3 percent interest. The transaction also included the refinancing of the initial mortgage. That same day, the three also signed papers for a $48,600 loan from the city's community development funds at 1 percent interest.

The housing agency controlled disbursement of the loan funds, none of which went directly to Zein.

The two loans -- now totaling $102,600 -- would pay for the renovation of the house and cover its mortgage payments, city officials said. Monthly payments on the HUD rehabilitation loan would be $299.70. Payments on the city's community development loan would be $239.55 a month, but installments on that loan wouldn't be due until the home was occupied.

The housing agency also said it would pay to store Zein's furniture, put her up rent-free in a temporary apartment and arrange for a contractor for the renovation.

"I was so grateful for help, I didn't ask any questions," Zein says of her loan transactions. "They just told me where to sign."

In quick succession, however, Zein's and the city's rehabilitation arrangement began to fall apart. Her disability payments were terminated in late 1981, reducing her monthly income to $46. Her daughter lost her job and her ability to pay her third of the mortgage. And her cousin shattered the fragile financial partnership by pulling out.

Zein, aided by her sisters, continued to cover the full monthly mortgage payments. But work on the house proceeded slowly.

Then, in the spring of 1982, HUD abruptly demanded its money back. It seemed, officials explained, that there had been a freeze on the program at the time of Zein's application, and sheshould never have received the loan in the first place.

With Zein now in over her head, city housing officials for a time considered making an outright grant of $54,000 in city funds to her and using that money to pay off HUD. They say they had her fill out an application for the grant, but Zein insists the officials actually promised her the money and congratulated her on her good fortune.

Whatever the initial intent, the idea proved too good to be true. When the grant application came before the agency's loan committee, it was denied. Instead, the agency decided to pay off HUD and collect, when able, from Zein.

"We were thinking of making her a gift of the $54,000," said Emelda Heller, who was chief of DHCD's single-family housing rehabilitation office at the time the loan was recalled. "But the committee didn't want word to get out that we made a mistake that required us to give away $54,000."

Taking over HUD's note on Zein's house seemed like a better idea. "Everybody felt better about it -- everybody but Mrs. Zein," Heller said.

Zein, understandably, liked the prospect of being given the money. And she didn't like having the loan repayment still hanging over her head, especially in her reduced financial circumstances.

"Always, I make all sorts of sacrifices to be able to say I have something of my own," Zein said. "Why should I suffer when what happened was the city's fault? It's not fair."

City officials said they still hoped to work out a deferred payment schedule for Zein, and in June 1982, they told her to stop making her monthly mortgage payments until she was actually in the house.

But the rehabilitation work dragged on. Zein accused the contractor of shoddy workmanship and refused to authorize city payments to him. And though she may not have read the fine print of her loan agreements, she paid meticulous attention to the house's renovation, for example, paying extra to have a skylight installed.

The contractor collected $22,000 in three installments before Zein balked at further payments. An arbitrator awarded the contractor another $10,000, and he pulled out, with the work half completed.

Though Zein eventually regained her disability status, and now collects more than $760 a month, her difficulties with the city continued. Her cousin refused to sign papers revising the loan unless the city paid him $6,000 for his partnership interest. Vandals broke into the house, tearing up the plumbing and heating equipment and "putting us back to ground zero," according to the DHCD's Heller. Zein moved into a new apartment and began paying some of the rent, which now amounts to $235 a month.

But the city's patience had been severely tested by this point.

In addition to the loan, the agency spent nearly $9,000 to store Zein's furniture, payments that continued until early this year. It spent another $6,000 in rent subsidies in addition to the two years Zein lived rent free. And it had paid HUD $54,000 and spent another $32,000 trying to make the house livable.

"This thing has gone on so long," said Cromwell, the housing agency's spokesman. "The city has to try to recoup its losses."

In mid-1983, DHCD's director then, James E. Clay, wrote Zein that she must resume her mortgage payments and that the loan would have to be revised to get the additional funds to complete the renovation work. And in a curious twist of bureaucratic logic, she was later notified that she could no longer receive a housing subsidy because she owned a home.

Zein refused to resume mortgage payments of $239.75 a month, and the matter was turned over to a private collection agency. Last month, he received word that her house would be auctioned off to the highest bidder at a foreclosure sale April 3.

Zein's position, which has hardened over time, is that she wants the "grant" of $54,000. She says she has paid more than $13,000 in mortgage payments and is no closer to living in her home than she was four years ago.

"At this point I feel that I shouldn't have to pay one thing," she said recently.

Heller and others familiar with the case say Zein's situation is unusual and was probably exacerbated by problems that existed in the rehabilitation loan program at the time of her initial application.

"She came through just as we were trying to clean the program up," says Heller, who nevertheless expressed skepticism at Zein's claim that she did not understand the loan repayment terms.

"She doesn't want to understand," Heller says.

Zein is still hoping to save her home -- short of actually resuming the mortgage payments, which she says she can't afford on top of her monthly rent. She has been told she needs $11,000 to halt foreclosure.

Her housing subsidy has been reinstated, but this is small comfort to Zein: She has been declared eligible for the assistance again, according to the official city notification, because, "We are in the process of executing foreclosure proceedings . . ." and Zein will no longer be a homeowner.