The Papermill condominium, once the flagship project of the trendy and high-flying Holland and Lyons real estate firm, was the first of several waterfront condominium projects that tried to cash in on Washington's real estate boom in the late 1970s.

Warren Avis, founder of the Avis car rental company, initially helped Holland and Lyons get bank loans to finance the ambitious $20 million project.

Holland and Lyons completed the first phase of the complex, the construction and sale of 100 closely stacked new tow houses abutting the Whitehurst Freeway. These town houses apparently are not involved in the current foreclosure.

But Richard Holland and Bruce Lyons, two brash young men in their 30s, ran into severe financial problems in early 1980 before they could complete the second phase--the conversion of the old paper mill into office space and the construction of 25 luxury condominiums in a new building connected to the old mill.

The second phase ended up in the hands of the Columbine Limited and its president, Ronald M. (Mickey) Nocera, a Rockville plumbing contractor, who had been a Holland and Lyons partner in the deal.

The First National Bank of Maryland, which has lent $14.3 million to the project since 1979, foreclosed on the 25 units, the office space and more than 100 parking spaces, according to a source involved in the foreclosure.

Papermill Associates, the name of the old partnership that included Holland and Lyons, Nocera and his company, borrowed $11 million from First National in July l979, acccording to the documents at the Recorder's Office.

Nearly two years later, on Feb. 27, 1981, an additional $3.3 million was lent and consolidated with the first loan, making the total indebtedness to the bank $14.3 million. The developers were to pay a 15 percent interest rate on the total loan, which was due in full on June 30, l982.

On that same February day, the partnership papers filed with the recorder show that Holland and Lyons withdrew from the partnership, leaving Columbine and Nocera as the sole owners.

Neither Nocera nor bank officials could be reached for comment.

In a foreclosure statement filed with the city recorder, the bank said it was owed $14.3 million plus interest from April 7, l982.

The Papermill is the fourth area condominium project to go into foreclosure so far this year.

Earlier this month, the sale of the Hastings, a virtually empty condominium building of 54 units at 4444 Connecticut Ave. NW, was averted because of a creditors' bankruptcy petition. A real estate affiliate of Virginia National Bank took ownership of 16 unsold units at the Downing & Vaux condominium in the heart of Georgetown.

"Some builders got caught in a bind where they had to face interest rates on their construction loans eating them alive" coupled with a downturn in sales and competition from individual condominium owners who could offer their units for sale at lower prices, said Bette June Ingham, president of the Washington Board of Realtors.

"All of these projects were planned 2 1/2 years ago when the market was good, and you can't stop a building in the middle" when the market slumps, she added.

Washington's condominium sales drooped a whopping 39 percent from 3,358 sales in 1981 to 2,047 in 1982, according to figures from the D.C. Department of Finance and Revenue.