Seven years ago Peggy and Harold Rice returned to the Washington area from their last overseas post. Rice, a Navy captain and Annapolis graduate, had just completed a tour as our embassy's defense and naval attache in Denmark. The assignment to Washington would close out his 34-year naval career.

Like so many couples thinking of retirement, the Rices had dreams of a small place in the country. They knew where they wanted to be: the Poconos, in their native state of Pennsylvania, where each had vacationed since childhood. It wasn't long before they found their spot. In the summer of 1972 they bought a one-acre plot on top of a mountain at what appeared to be a promising development - crushed gravel roads already in electric power lines running to each division tract, assurances of ample water for all, golf course, security, skiing in the winter, swimming in the summer. Just the place for their four children and their families to visit in the years to come.

Now you must understand that the Rices are not your mythical average American couple. They didn't go into their country development with their eyes shut: they were not naive. Yet what happened to them surely is not untypical. They swiftly found themselves trapped in a nightmare of legalisms, bureaucratic bumbling and red tape. Years later, their problems and frustrations still have not been resolved. And they are profoundly shaken by what they have seen of the way the legal system - and the government - works for so many ordinary citizens.

As Capt. Rice, a soft-spoken and temperate person, says about their experience: "It makes you believe you cannot get relief, you cannot get justice and you cannot get an equitable solution to your problems in this country."

It began on a fall day in 1975 when they drove up to inspect their piece of land. During the oil embargo and the energy crisis, they had become concerned about whether or not their far-off tract would be feasible in a gasoline-short America. But the crisis eased, and now they were going ahead with plans for building on top of the mountain. "We like to drive up and look and think and dream about the house we would build there." Peggy Rice says.

This time, they had studied building plans and had contacted contractors. They were ready to start. As they drove up the winding mountain and approached their property, they were stunned to find their path blocked. There, smack on their land, and denying them entry to it, stood a huge tank erected on the property. It was the size of a railroad car, and, as they found out, it was to hold water.

"We couldn't believe that anyone would dare do that on private land," Capt. Rice recalls.

Down the mountain they went and back to the sales office. The man who sold them the property claimed to know nothing about it. It surely was a mistake; it certainly would be removed. There had been problems in getting water to some of the lots and obviously this tank had been put in place improperly. It would be removed and buried on community property. No problem. The Rices were relieved.

When they next went back to the Poconos, there had been a change, all right - but not the one the Rices wanted. The tank was still in place, but tons of earth had been bull-dozed over it. Now the tank had been transformed into some huge archeological-type ofearthen mound.

At that point the Rices began the long process of seeking help, a process that still continues. They went to the developers. They went to the community property owners' association. They attempted, without success, to locate the water company that supposedly had placed the tank on their property. They took their case to their sheriff and the chief of detectives in the area, to no avail. They had a legitimate complaint, they were told, but the law-enforcement officials could do nothing for them. They faced a civil matter, not a criminal matter. Finally, they retained a lawyer. Preparations were made to file a suit for trespass.

Then the next blow fell. It seems the property developers were not selling lots fast enough. They were going into bankruptcy. The Rices' lawyer advised his clients that no matter how worthy their cause, a suit was worthless. They had no recourse, With bankruptcy, there was no chance to get any action or recover any damages. It was ridiculous even to sue.

That's when the Rices, in desperation, began trying to find out who could help them. While Capt. Rice continued attempting to deal with the lawyers and developers, his wife turned to the federal government. It was to be even more frustration.

Peggy Rice didn't know where to befin. "I was groping," she says. "The federal government is so big, so I just went through the telephone directory under United States Government listings and started calling numbers that I thought might be able to help." She called the Justice Department. Then she called the Department of Housing and Urban Development.

She and her husband knew, because of the documents they had amassed, that any developer in interstate land sales has to spell out plans and register with HUD before it can begin to sell land.

Mrs. Rice was referred to HUD's Washington Office of Interstate Land Sales Registration. A man listened to the story and suggested this conceivably coulb be a criminal matter if the claims were falsified. He told Mrs. Rice to write a letter, detailing the entire case with a chronology of pertinent events and mail it to a Christopher Peterson, chief of the Land Sales Enforcement Division, of HUD's Interstate Land Sales Registration Office. Her husband immediately drafted a four-page typewitten letter and mailed it to Peterson this Feb. 16. The Rices would be called as soon as HUD got the letter.

Eight more days passed. No calls. Mrs. Rice picked up her phone. The man she had spoken to originally was not there. She was referred to another. Again, she told her story. No, HUD hadn't got the letter. He would look into the matter and contact them.

Another week passed. No word from HUD. Mrs. Rice picked up the phone again. The last person she had spoken to wasn't there. She asked for the man's supervisor. Again, she told her story. Again, HUD still hadn't received the letter. Would Mrs. Rice send them a copy? No, but the Rices would deliver a copy of the letter personally that day. An appointment was made, and the Rices appeared in person the next day at HUD's huge Washington headquarters.

The Rices at this point felt a new sense of urgency. The bankruptcy proceedings were ending , and it seemed, new owners were taking over the development.

Their letter, it turned out, seemed to have been lost. Maybe it was somewhere in the mail room, maybe it would eventually turn up. In any event, it would not go directly to the person addressed because he was the boss, he was too busy, and it would be delegated to someone else. Besides, it often takes as long as 30 days before letters begin to get action, they were told.

At all times the Rices were received courteously. But, they say, given wrong advice. They were told they should contact the U.S. attorney in the Scranton, Pa., area. When they did so, the attorney said it was HUD that supposed to contact him. Even then, he went on, the Rices had to understand that such offices were terribly overworked and understaffed. They simply could not handle all the complains they receive. The same thing was said back at HUD.

And there's where the matter stands today. Capt. Rice, a thoughtful man, says:

"In itself, this case may be only a small one, but it is representative of what's happening in this country. And I feel so sorry for the people who are less educated than we, who are less worldly than we, who can't afford to take a loss as well as we. What about them? It's just not right.

"People are becoming more and more frustrated. There's simply no one they can turn to - and that isn't right."