Four years ago, developers Joseph D. Marsh of Georgetown and Richard J. Guerard of Annandale decided to convert a Roman Catholic nunnery, the small adjacent chapel, and former school into condominiums, retaining the stained-glass windows, heavy oak doors with crosses and cloistered courtyard.
In February 1980, Standard Federal Savings and Loan of Gaithersburg made the developers a $4.1 million, one-year construction loan to convert the existing buildings and add approximately 20 new town houses along the perimeter of the courtyard, according to documents at the Recorder of Deeds' office.
The developers, trading as the Urban Land Corp., missed the repayment deadline which was extended to August 1981.
Finally, in March 1982, the bank took over effective control of the project, said Patrick Moran, an attorney for the developers.
"The interest costs on the construction loan were straggering, and that, coupled with the units not selling, is what got them in trouble," he said.
"The interest was running about $50,000 a month or more," because the interest rate on the loan floated two points above the prime rate, which reached a high of 20 percent, he said.
When Standard stepped in last March, the developers had spent just over $3 million of their original $4 million loan, Moran said.
The savings and loan agreed to lend the project the rest of the $4 million plus an additonal $1.1 million. But in return, Standard Federal wanted one of its subsidiaries to take control of the project's operation, including sales, Moran said.
In addition, "Standard Investments the S&L's subsidiary is supposed to get 50 percent of the profits," Moran said. "They the savings and loan imposed that as a condition not to foreclose."
Officials at the Standard Federal could not be reached for comment.
At the project earlier this week, a salesman, who said he worked for Standard Federal, offered prospective buyers an initial interest rate of 9 7/8. But he explained that the rate would increase one percentage point a year for the next seven years bringing it to 16 7/8. He said that he financing was through Standard Federal, and that there was no down payment for the units, which were priced between $87,000 and $104,400.
The foreclosure initiated by Standard Federal was stalled after other creditors filed the bankruptcy petitions aginst the development company. These creditors include the Archdiocese of Washington, which holds a third mortgage on the project for $285,000, according to Moran and the bankruptcy papers.
Built in the 1920s, the convent housed nuns for 40 years. The school was once used by St. Augustine Church, one of the nation's oldest black parishes.
In 1961, St. Augustine's merged with St. Paul Church and moved three blocks north on 15th Street.
As the property values rose during the city's real estate boom in the late 1960s and the number of nuns living at the convent decreased, the archdiocese decided to sell the site to the developers for $1.4 million.
The money went to St. Augustine's school, said Father Raymond Kemp of St. Paul and Augstine's Church.