The mortgage-banking affiliate of Equity Programs Investment Corp. stands to lose $500 million if the federal courts take control of EPIC's tangled financial affairs, an executive of the faltering Falls Church real estate empire warned yesterday.

The threat of a half-billion-dollar loss that would force the company into bankruptcy was raised by Robert N. Kemp, president of EPIC Mortgage Inc., in documents filed in U.S. District Court in Alexandria.

Attorneys representing the EPIC family of companies urged the court to reject a request by two local banks for the court to appoint a receiver to manage payments on more than $1 billion worth of EPIC mortgages that are past due. Judge Claude Hilton said he will rule Tuesday on the banks' companion request for an injunction against EPIC.

If the court names a receiver and issues the injunction, EPIC Mortage could be forced to default on the mortgages "and may well be forced to go into bankruptcy," EPIC attorneys argued in court papers.

"This 'domino effect' caused by the issuance of a preliminary injunction in this case would be catastrophic to the financial status of EPIC Mortgage," the company said.

Such an injunction also could cripple the related management company that collects the rents from more than 20,000 houses owned by tax-shelter investment partnerships operated by Equity Programs Investment Corp., the parent company, another EPIC official said.

As the embattled real estate investment company sought to prevent the banks from seizing millions of dollars in missed mortgage payments, EPIC attorneys warned that internal efforts to work out the company's problems will be thwarted if the court interferes.

Appointment of a receiver is being sought by National Bank of Washington and First National Bank of Maryland, trustees for holders of nearly $1 billion in mortgages. The banks' lawsuit also asks for an injunction against EPIC Mortgage Inc. disbursing any cash it has collected.

Two weeks ago, EPIC disclosed it was delinquent on monthly payments on more than $1 billion in mortgages and mortgage-backed securities. The announcement triggered a crisis at EPIC's sister institution, Community Savings & Loan of Bethesda, forcing Maryland Gov. Harry Hughes to freeze all withdrawals from the thrift.

Yesterday's hearing and documents filed in court revealed new details of EPIC's problems. Kemp told the court that two mortgage insurance companies have tried to cancel their EPIC policies unilaterally and that other insurors have warned they will do the same.

"The total amount of potential claims under the primary insurance policies are sufficiently large that it calls into question the ability of the mortgage insurance companies which insure the mortgage loans to pay the total amount of projected losses," Kemp warned in his deposition.

Lawyers for the banks denied that EPIC would be destroyed if the court steps in, but did not argue with the bleak assessment of the partnerships' financial health. "They are essentially certifying that their entire portfolio is worth zero," said Warren Dennis, the lead lawyer for the banks.

One of the main issues in court yesterday was the complicated and nebulous structure of the EPIC financial services empire. EPIC lawyer Kenneth Lore argued that a number of distinct EPIC entities exist, and that EPIC Mortgage, the company which is the defendant of the banks' suit, does not control the income generated by the properties underlying the mortgages.

According to EPIC documents, EPIC Mortgage, which services the mortgages, is a separate entity from EPIC Realty Services, which manages the investment properties and passes on mortgage payments from the partnerships that own the properties.

EPIC Mortgage is owned by Community Savings, they said. EPIC Realty is owned 61 percent by T. J. Billman, founder of EPIC, 20 percent by Eugene S. Isaacs, president of EPIC Realty and 19 percent by Clayton McCuiston, president of Community, the documents show.

Lawyers for the banks argued, however, that the corporate structure depicted by EPIC is a smokescreen thrown up by a rapidly weakening company. They said that the assorted EPIC affiliates are essentially one company wearing a number of different hats.

"These are not affiliates in the sense of separate subdivisions of a common parent," Dennis said. "We are, in fact, talking about the same human beings."