William A. Joyner, a 79-year-old school-crossing guard from Hampton, Va., was desperate for money to pay family medical bills when he heard about Landbank Equity Corp.

Turned down by 15 lenders, Joyner was living on $561 a month in Social Security benefits and his part-time job when he went to Landbank, a Virginia Beach company that advertised itself as a lender of last resort.

Landbank agreed to give Joyner two loans on his house: a $950 first mortgage and a $24,950 second mortgage. But the cost was high -- 24 percent interest on the first mortgage, 23 percent interest on the second. In addition, Landbank charged Joyner $583 in fees and discount points on the first mortgage and kept $7,148 of the second loan for similar charges.

Discount points are a percentage of a loan that is collected in advance by the lender. But that isn't the way they were understood by Joyner's daughter, Marilyn Brantley, who cosigned the note.

"The paperwork didn't say discount points, it just said discount," Brantley said. "We thought that meant it was cheaper. That's what they said, and we took them at their word.

"They had told us the interest rate would be 16.5 percent, but when we saw the truth-in-lending papers, it showed it was more. We asked about that, but they told us not to worry about it, that it was just red tape."

Joyner has now sued Landbank for fraud and misrepresentation. Landbank has not responded to the lawsuit, but a lawyer for Landbank's president said there was nothing improper about the loans.

Joyner is one of more than 7,000 Virginia residents who mortgaged their homes in exchange for high-interest loans, said a spokesman for the Virginia Attorney General's Office, which is investigating whether the company violated the state's consumer protection laws.

Landbank, which at one point had 39 offices in five states and claimed to be the largest second-mortgage company on the East Coast, is now in bankruptcy.

The company is the target of an investigation by a federal grand jury and the Federal Bureau of Investigation, according to Lee M. Quick, a spokesman for the FBI in Norfolk.

The company faces 100 lawsuits in six states from consumers and investors who contend they were defrauded, according to David Adams, an attorney for the bankruptcy trustee.

Landbank is one of two mid-Atlantic second-mortgage companies that have closed their doors recently amid allegations of fraud.

First American Mortgage Corp. of Baltimore is the target of a criminal investigation by the state, according to the Maryland banking commission.

FAMCO is also a defendant in civil suits accusing it of fraudulently diverting almost $10 million to improper uses. FAMCO attorneys have denied the company diverted funds.

Landbank has not responded to many of the court actions filed against the company, because its bankruptcy proceedings have halted action in the other cases.

Company officials could not be reached for comment, but the lawyer representing Landbank President Marika Runnells denied claims that "Landbank was making any bad loans, because they weren't.

"They the borrowers have no business complaining after they got money . . . because they are in a payment pinch," said attorney Richard G. Brydges. "It may not be a business I'd want to get in, but it's a legitimate business. They were lending money at high interest rates to people who couldn't get it elsewhere. It's a supply and demand situation. They had a service to sell." No License Required in Va.

Virginia does not require second-mortgage companies to be licensed. Legislation that would have limited interest rates on second mortgages was killed in February by a state Senate committee chaired by Peter K. Babalas, a Tidewater lawyer who bankruptcy records show received $61,480 in legal fees from Landbank.

Last week, it was disclosed that three days after Babalas cast his vote and proxies for two colleagues to kill the bill, Landbank authorized a $3,000 payment to him.

A handwritten note on company records turned over to the Senate Ethics Committee said: "This was one we agreed to pay after he stopped legislation in Richmond."

Babalas, who served for a time as Landbank's general counsel, has denied any conflict-of-interest. His lawyer, Wayne Lustig, has said the fees were proper because they were for legal services, and he expressed skepticism about the note. "I think Sen. Babalas is being set up."

He said Marika Runnells said she had no knowledge of money being paid for legislative influence.

Babalas is scheduled to appear before the Senate Ethics Committee tomorrow to answer questions about his affiliation with Landbank and his role in the committee vote.

Landbank and First American Mortgage are not connected, but both failures illustrate pitfalls in the emerging second-mortgage market. Both firms made high-interest second mortgages and both financed their operations by selling the loans they made to investors, including banks, savings and loan associations and individuals. Both are accused in civil lawsuits of cheating the investors who put up the cash they loaned out.

The collapse of Landbank has set borrowers and investors against each other. Borrowers are trying to protect their homes from foreclosure, while investors are trying to get their money back -- by taking the houses if necessary.

The people who borrowed money from Landbank, say lawyers familiar with the cases, were mostly desperate -- poorly educated and in some cases illiterate, poor, elderly or unemployed. Many borrowers are now delinquent in their loan payments and have filed suits asking courts to render the loans void because of the alleged misrepresentation of terms.

Joyner, who has a third-grade education, said recently that neither he nor his daughter understood the terms of the loans or that they were paying so much in fees.

Soon after taking out his two mortgages in March 1983, Joyner fell behind on his payments, and when Landbank threatened to foreclose on his house, he agreed to refinance the loans. The complaint and loan documents filed in Joyner's lawsuit against Landbank said he has taken out three additional loans, using some of the new money to pay off old loans. As of December 1984, Joyner still owed $42,754 on the last two loans. Joyner and Brantley said they have repaid approximately $6,000 to Landbank.

Out of the total borrowings, the loan documents show he got only $23,578 in cash. He paid $16,168 in discount points, $950 for appraisals on the property, $950 in attorneys' fees, while all the rest went to other charges, according to the documents. On one of the loans, the effective interest rate was 30 percent, the loan papers show; Joyner's monthly payments have climbed to $693 -- $132 a month more than his income.

"It's a shame what they did to my father," said Brantley. "They were the most courteous people in the world, couldn't do enough for us, but now we feel as if they were wolves in sheep's clothing. My father is going to lose his house if he can't get someone to help him." Brantley said she and her husband, who are liable for her father's loans because they cosigned them, might have to sell their home to pay the loans. Couple Owns Landbank ---

Landbank is owned by the firm's president and her husband, William Robert Runnells Jr. Marika Runnells, who is the only company official to have appeared in bankruptcy court proceedings, testified that her husband and his brother, John Edward Runnells, started the company and turned the management of it over to her last year.

Brydges said Marika Runnells has done nothing improper in managing the company.

"She is of the persuasion that if these assets were handled properly in the bankruptcy proceedings , everyone would get paid every cent," Brydges said. "She doesn't see that she did anything wrong." Loan Firms Add New Twist

While lending money at high rates is nothing new, companies such as Landbank and FAMCO have added a new twist to the business by financing their operations through the secondary market for second mortgages, which has grown from a $10 billion business in 1978 to $75 billion this year.

Selling their loans to investors looking for high yields allows companies like Landbank and FAMCO to make money, even if the people borrowing the money never pay off the mortgage, industry officials said.

"If a broker charges a high interest rate, or lots of discount points, it means he is making bottom-of-the-barrel loans," said the executive of one insurance company that used to insure second mortgages, but stopped after losing more than $20 million.

"People buy these loans on the secondary market because they are greedy for the high yields from second mortgages," said David Maxwell, chairman of the Federal National Mortgage Association. "That Landbank could sell so many loans is just one more example that people have let their greed outstrip their caution."

FNMA -- known as Fannie Mae -- bought $20 million worth of Landbank loans in 1983, but Maxwell said they stopped doing business with the company after about six months because of concern about the quality of the mortgages. He said Fannie Mae stands to lose at least $1 million, and possibly much more, on its Landbank business.

Of the $183 million in loans made by Landbank, roughly $150 million is outstanding, attorney Adams said. While some companies that invested in Landbank mortgages say they believe their exposure is low, they admit that if state courts declare the loans void because of law violations, the investors could ultimately lose much more.

According to court records, both Landbank and FAMCO financed their lending business by selling the loans to other investors. Both companies used the cash obtained from sales of the loans to make more loans, passing the high-risk mortgages on to other investors.

Landbank and FAMCO routinely serviced the loans they sold to investors, that is, collected the payments on the mortgages and passed them on to the investors holding the notes.

In both cases, however, investors who bought the second-mortgage loans are now suing the companies for allegedly not turning some of the money collected over to them.

Landbank has been sued by 33 savings and loans for allegedly diverting $5 million in mortgage payments over a four-month period this summer.

In bankruptcy court proceedings, attorney Paul S. Bliley said Landbank did not divert funds due to investors and "that the company denies charges that it is guilty of any illegal or fraudulent practices" in its lending business.

Brydges said Marika Runnells told him that the savings and loans had agreed to let Landbank hold back the mortgage payments due them as part of the servicing contract. "They cleared that. The investors knew Landbank was trying to get another loan, and they said it was all right."

FAMCO, which wrote approximately 6,000 mortgages worth $180 million in six years, was sued in federal court in Baltimore by E. F. Hutton Mortgage Corp. Hutton, which bought $64 million of FAMCO mortgages, alleged that FAMCO diverted $9.7 million in mortgage payments that should have been passed on to Hutton Mortgage and other investors. The court has frozen FAMCO's assets and those of company President Michael H. Clott. FAMCO Denies Allegations

Clott, in a deposition filed last month in the Hutton lawsuit, testified that neither he nor the company diverted funds. Lee Ogburn, Clott's lawyer, said Clott "categorically denied" the charges that he and FAMCO fraudulently diverted funds due Hutton Mortgage.

There is little direct government regulation of the sale of mortgage loans, but industrywide standards are set by the three institutions that dominate the business: the government-chartered Fannie Mae and two federal agencies, the Government National Mortgage Association -- known as Ginnie Mae -- and the Federal Home Loan Mortgage Corp. -- known as Freddie Mac.

Most second-mortgage loans conform to the standards of the three big mortgage investors, but lenders, such as Landbank and FAMCO, are free to sell second mortgages to other investors with little federal or state regulatory oversight.

Virginia lets second-mortgage companies operate largely unregulated, with only a few stipulations, such as limiting loan fees that can be charged on second mortgages with a term of less than 10 years and two months. Most of the loans issued by Landbank in Virginia had terms of a few months longer than that, making them exempt from the limits, said Adams, attorney for the court-appointed trustee who is overseeing the firm's liquidation.

Maryland requires second-mortgage companies to register and examines their records every 24 months. A spokesman for the state banking commission said Landbank was registered with the state, but closed its office in Baltimore before it was time for an examination.

The spokesman said that FAMCO, while based in Maryland, was not required to register because it did not make second-mortgage loans in the state. All its second-mortgage lending was done in other states. S.C. Requires Registration

South Carolina, where Landbank made more than 1,700 second mortgages, requires second-mortgage lenders to register and to report interest rates higher than 18 percent. The state Department of Consumer Affairs has filed a civil suit in federal court against Landbank on behalf of 1,000 state residents who obtained Landbank loans. Philip S. Porter, an attorney for the consumer affairs agency, said the state began investigating Landbank after the company filed reports showing it was charging interest rates of 40 percent on some loans.

The South Carolina suit, filed against Landbank and a host of defendants just prior to the company's bankruptcy filing, alleges that the company operated an "illegal and fradulent interstate lending scheme which has had the effect of injuring the borrowing public of South Carolina."

The suit alleges that Landbank violated the state's consumer protection and unfair trade practice laws, the federal truth-in-lending act, and federal racketeering, mail-fraud and wire-fraud laws.

The suit also alleges William and Marika Runnells conspired to "portray falsely the image that the enterprises were bona fide, legitimate, prosperous, honest, above board, trustworthy and successful, when this was not the case, and when reality is that the enterprises were fraudulent and misleading in inception."

State officials said Landbank did not respond to the suit, but that William and Marika Runnells had sent letters denying the allegations.

The court-appointed trustee for Landbank charged in bankruptcy court proceedings that the company's principal officers diverted $10 million into subsidiaries in an effort to keep company funds out of reach of the bankruptcy court.

During the proceedings, the trustee accused the three Runnells, along with five other family members and 16 affiliated companies, of "willfully and maliciously injuring Landbank in its reputation, trade and business for the purpose of . . . defrauding the creditors of Landbank."

In addition, Adams said Landbank records show that William and Marika Runnells gave themselves more than $1.3 million in "improper" brokerage fees and another $504,000 in "improper" preferences. U.S. Bankruptcy Judge Hal J. Bonney Jr. recently froze the assets of the 16 affiliated companies and the Runnells family after Marika Runnells, who appeared briefly in court, did not contest the freezing of the assets.

Brydges said: "She hasn't done anything wrong. I think the trustees are overreacting. . . . The trustees have done some things that are equivalent to chasing ghosts."

Adams said in a bankruptcy court hearing that in at least 20 instances Landbank wrote and sold two first mortgages for the same condominium unit in a complex the company built in Virginia Beach. Adams told the court the company issued mortgages in the names of company employes and then sold the notes to investors to raise money in order to pay off a construction loan on the project. When the company later sold the units to real buyers, it did not pay off the original first mortgages, but wrote and sold duplicate first mortgages for each unit, Adams said.

"Basically, you now have two investors claiming they have a first lien on each of those condos," Adams said.

Brydges said Runnells denied having written duplicate mortgages for the condos. "Some of these things the trustees are saying are so ridiculous," Brydges said. "They would have had to have an operation where they milked them [the borrowers] and then got out of town, and that's not what they've done."