Walter L. Otstot, an Eastern Shore developer with ties to Old Court Savings & Loan Association, was indicted today on charges of stealing and misappropriating nearly $2 million in funds and property from the now-defunct thrift and its subsidiaries.

Otstot, 58, is a close associate of former Old Court president Jeffrey Levitt and is the second Old Court figure to face charges in the state's investigation of the thrift. Levitt was indicted Jan. 3 on charges of theft and misappropriation of $14.6 million in depositor funds.

Maryland Attorney General Stephen H. Sachs announced the 12-count indictment shortly after it was returned by a grand jury this afternoon. Sachs said he expects more indictments of Old Court officials as the investigation continues.

Otstot is charged with conspiring with Levitt and others to steal money and property from Old Court and its subsidiaries in deals involving the development of three Ocean City, Md., properties.

He is charged with five counts of theft, each of which carries a possible penalty of 15 years in jail, and seven misdemeanor counts, including conspiracy to steal, misappropriation by a fiduciary and making false entries in partnership records. If convicted, he also could be ordered to return funds he allegedly stole.

Otstot, who has diabetes and a heart ailment, is undergoing medical tests in Vermont, where he owns a vacation house. He is scheduled for arraignment here Wednesday.

Gerald Martin, Otstot's attorney, said his client's association with Old Court had resulted in Otstot being unfairly "tarred with the same brush" as Levitt. He said he rejected the state's offer of a plea agreement that would have required Otstot to plead guilty to one theft count and one misdemeanor count.

Sachs refused to comment today on whether plea negotiations were taking place with Levitt or other Old Court figures.

However, sources said that former Old Court directors Dennis E. Guidice and Allen Feinberg have been involved in plea negotiations. The sources said agreements appear unlikely because prosecutors are demanding guilty pleas to counts that could bring them jail terms of 25 to 35 years. Action on those cases is expected within weeks.

Jerome Cardin and Allan Pearlstein, who were joint owners with Levitt of Old Court, are still under investigation by the attorney general's office, sources said.

While Sachs' office has taken on the prosecution of Old Court officials, the U.S. attorney's office here is weighing an investigation of three other savings and loan associations involved in the state's thrift crisis. Sources said activities at Community, First Maryland and Merritt S&Ls are likely to come under federal scrutiny. Merritt is now owned by Chase Manhattan Corp.

In today's indictment, Otstot is accused of stealing property worth $1 million from Old Court Joint Venture, a thrift subsidiary that had formed a partnership with Otstot to develop the Bay Suite Inn, a condominium and restaurant on Coastal Highway in Ocean City.

Details of the alleged transaction, while not included in the indictment, are laid out in the state's $200 million civil suit against Old Court officials.

The state alleges that Old Court agreed to give the Bay Suite partnership a $4.5 million, low-interest loan to develop the project. Otstot then transferred the joint venture's share of the partnership to a company he owned and agreed to give Levitt half-ownership and half of Bay Suite's profits, the indictment said.

According to the indictment, Otstot also allegedly stole $700,000 in a transaction involving the development of The Waves condominium project on Coastal Highway. He also is accused of stealing $100,000 in a transaction involving the development of the San Tropez condominiums at 81st Street and Ocean Front.