For years, a scruffy tract of land adjoining the Southwest Freeway represented to some people a final opportunity to redress the grievances of the poor and mostly black residents displaced by the bulldozers of urban renewal in Southwest Washington.

But a 28-page ruling last week by U.S District Court Judge Harold H. Greene, after six years of legal strife, has erected what me be an insurmountable barrier to the city's plan to allow low and modest-income housing on the 3.3-acre tract -- the last major undeveloped site in Southwest. h

Green ruled Wednesday that the city's urban renewal agency was wrong to change its 1956 development plan from church-and-school use to housing use on the tract without the consent of town house residents across the street. The change was made after extensive public hearings in 1974.

Those town house owners told the judge that they were worried that their property values would drop if low - and moderate-income rental housing were built near their $100,000-and-up homes.

The federal judge said that the city's Redevelopment Land Agency (RLA) must get the consent of the town house owners before allowing the subsidized housing in the neighborhood.

As a result, the virtually fatal hitch facing the city is that it must seek approval the city is that it must seek approval for the new housing from the people who brought the lawsuit against it.

Southwest was the city's most squalid from when Congress passed the District of Columbia Redevelopment Act of 1945. The nation's first venture into urban renewal, it was hailed as a milestone of progress around the country.

When the bulldozers moved in during the 1950s, city officials promised the low-income, mostly black residents that they would be able to return to better housing. But as more and more of the old wooden houses and outdoor privies were razed only to be replaced in large part by luxury housing, Southwest, a once closely-knit community within eyeshot of the Capitol, became a synonym for black removal from the center city.

City officials had come to fear that low-income residents of public housing projects in Southwest would not be able to "escape" to better housing if there were few moderate-income housing alternatives in the area.

To the people who lost what they see as this last chance to get additional and badly needed low- and moderate-income housing in Southwest, the judge's decision means that rich can still kick poor people off the block -- even in Washington, D.C.

Phyllis Martin, 55, has lived in Southwest since 1951 and saw her first home there razed in the name of urban renewal. "One of the things they could have done to make amends was to give us that last peice of land," she said.

"It's like a friend has died," Martin said. "It's disgusting and deplorable, (and) I know it's political."

To wealthy landowners, including the Rockefeller family and other investors in the nearby L'Enfant Plaza complex, the court ruling represents a victory over urban renewal bureaucrates who tried to change the development plan for Southwest without the consent of those who would be substantially affected.

L'Enfaant Plaza is the hotel, shopping and office complex that stretches from Independence Avenue to the Southwest Freeway at 10th Street.

David Rockefeller, a partner in L'Enfant Plaza and chairman of New York's Chase Manhattan Bank, received several personal appeals from proponents of the new housing to settle or compromise in the lawsuit.

In a March 1975 letter to Rep. Henry Reuss (D-Wis.), who lives in Southwest, Rockefeller said, "The desirability of having the proposed housing itself is not an issue for L'Enfant Plaza in this case.

"You can understand, I am sure," the letter continued, "the reluctance of any developer to commit the millions of dollars necessary for a project like L'Enfant Plaza, if that investment were subsequently to be subject to changes which significantly affect it and over which it has no control."

The federal judge ruled that prior to 1968, the RLA had interpreted the urban renewal law as requiring the government to win the consent of affected landowners in urban renewal areas when changes in the original plan were proposed.

After 1968, however, RLA changed this practice and adopted the position that such consent was not needed.

Greene ruled: "Public policy can hardly be said to favor a sequence of events whereby the government makes a quasi-contractural promise of (urban renewal) plan stability in order to attract private investment so as to help clear a blighted area, then to renege when the job has been done and it is too late for the investors to withdraw."

Overlaying the six-year struggle to develop what is designated as Parcel 76 are fundamental economic and racial distinctions: Most of the proponents of the new housing and those who would benefit from the project are low- and moderate-income blacks.

In contrast, most of the landowners and businessmen who challenged the project are relatively affluent and white.

The thousands of pages of testimony in the lawsuit contain no references to economic or racial differences. But one city lawyer who worked on the case for more than five years said, "You can feel it, sense it, but you can't prove it."

"Racism has always been lurking beneath the surface, but no one says they are racist," said Margaret M. Reuss, the congressman's wife, shortly after the lawsuit was filed in 1974.

However, others contest that view. "This is not a black-white thing," said Arthur Berndtson, the lawyer who represented the 49 town house owners who filed suit, "It's an effort on the part of responsible people who put an investment in land and a new endeavor to protect that investment," he said.

One town house owner who joined the lawsuit was black. Emerson Williams, a physician who has since sold his home and relocated in upper Northwest Washington, said at the time, "I don't know any community that brags about its low-cost housing. If it doesn't lower our values, it will keep them from rising."

Reuss, chairman of the House banking, finance and urban affairs committee, said the loss of the housing site, which is bounded by the freeway on the north, Jefferson Junior High School on the south and Seventh Street on the east, adds to the polarization between rich and poor in Southwest.

"There was a grievous error in the planning of the Southwest," Reuss said, "We had a splendid supply of luxury town houses and condominiums for the wealthy and badly designed high-rises for the poor, but nothing for moderate incomes.

"It was determined," he said "that wehad to do something to take the curse off of the rich-poor status of the Southwest."

The preliminary proposal for the housing site called for the construction of 139 garden apartments in row house configuration. They would be built by a private corporation set up by Congress and the National Housing Partnership. The builders would have been assisted by the insurance coverage and mortgage discounts of the Section 236 program of the Department of Housing and Urban Development HUD.

Tenants would qualify by income levels and up to 40 percent of the complex could be occupied by low income residents receiving rent subsidies from HUD.

With the court ruling last week, "The final nail in the coffin was delivered by Judge Greene," Reuss said. "His opinion is filled with statements of outrageous sociology and if he would take a walk with me and see what misery he has visited on Southwest Washington, I'm confident that he would reconsider his decision."

E. R. (Pete) Quesada, president of L'Enfant Plaza Properties Inc., has been cast as the leading antagonist of the housing proposal. He said any assertion that the lawsuit was recially motivated is "totally inaccurate."

"Some of the proponents of this concept have tried to create a racial implication, and they apparently failed," Quesada said.

However, a city official who once discussed the lawsuit with Quesada quoted him as having said at the time that the technical and legal issues in the suit were not his foremost concern. The city official quoted Quesada as saying, "We couldn't very well go into court and say we didn't want a bunch of blacks in our backyard."

Quesada, who was in Florida, replied, "I may have said that because we did not go into court for that reason. It would not have been proper to go before the court and say we didn't want blacks in our backyard."

Asked if the statement had represented his personal view of the suit, Quesada said his personal and professional reason for pursuing the suit was to assert the rights of urban renewal developers and to protect them from changes in urban renewal plans that affect their interests.

Quesada followed up the interview with a letter in which he said, "I repeat in this indelible form that there was no racial motive, purpose or implication when we sought justice within the judicial process."

The sensitivity still surrounding the housing site is so strong that City Councilman John Wilson (D-Ward 2), who represents Southwest, initially refused to comment, saying he feared his constituents might misinterpret his remarks.

"You say one thing and it appears you favor the poor. You say another and it favors the rich," Wilson said. He allowed that given the unkempt appearance of much of the low-income housing in Southwest, "nobody really wants it, black or white."

Wilson said he believes that "people who want to protect their property have a right to do so." He added that the court ruling will permit residents in the 10 other D.C. urban renewal areas to have greater control over "what they do in their community."

Russell Bierman, one of the 49 homeowners who joined in the lawsuit, said he and his neighbors, black and white, were concerned only about the reduction in property values that the subsidized housing would bring.

"We have relatively expensive houses and right after the (1968) riots, our housing values plummeted," Bierman said. Moreover, he said, "we were afraid of vandalism and an increase in crime.

Leon Fields, a Southwest community leader and among those who originally urged that housing be built on the site, said, "I remember at one of those public hearings a man against us said he didn't want 'people pollution' and that brought tears to my eyes."

Twice since the suit was filed in 1974, Reuss, D.C. Del. Walter Fauntroy and others sponsored legislation that would have decided the legal argument in favor of the city.

In the closing days of the 1978 congressional session, the House overwhelmingly approved the legislation, but the Senate adjourned before it could be considered.

However, in a reversal last month, the House rejected new legislation that would have again won the suit for the city.

Proponents of the housing complex said Quesada lobbied heavily to defeat the measure.

Replied Quesada: "Some of the people in the House were made aware and I helped make them aware of our position -- they saw this as a gross injustice."

City housing officials, who took over the powers and duties of the once-federal RLA after home rule, say they have not decided whether to appeal Greene's decision.

Meanwhile, Alice Thomas, 44, a lifelong resident of Southwest, thinks the ruling is not fair since no one asked her consent for any of the changes that have been wrought on the Southwest.

Since 1957, Thomas said, her family has moved 10 times to escape the bulldozers."They didn't ask us if we wanted it. They just took our land. I don't think it's fair," she said.