The Chancellor, a new Victorian-style luxury condominium at 3 Washington Circle, was taken over by First National Bank of Maryland this week.

The 51-unit condominium was auctioned off to the lender, the only bidder on the project, for $7.3 million.

The developer of the condo--Circle Associates, headed by Simon Hershon--ran into trouble on the project from the beginning when the Foggy Bottom and West End Advisory Commission objected to a plan to tear down buildings on Washington Circle, which the group wanted designated as historical landmarks.

In a compromise with the group, Hershon agreed to scale down the project and to allow an architect recommended by the advisory group to design a complex in keeping with the architecture on the circle. Sources familiar with the project said this added to Hershon's costs considerably. This resulted in the project's being priced out of the market, they said.

The developer also faced a lawsuit by a group of doctors that bought medical office space in the Chancellor and who claimed work on their part of the complex was not completed as promised.

Hershon tried over the last few weeks to reach financial arrangements with the lenders so he could keep the project, according to sources, but these efforts apparently failed.