The resident owners of Town Center, a large Southwest cooperative, have gone to court to fight the National Consumer Cooperative Bank's attempt to foreclose on their homes.

The federally created bank, under criticism for carrying a large number of bad loans, moved to take back the property last year after the owners fell behind in their payments on an $11.1 million mortgage.

The owners have fought foreclosure by declaring voluntary bankruptcy, a tactic the bank is contesting.

Meanwhile, awaiting the outcome of the fight is JNC Enterprises Inc., local developer Jeffrey N. Cohen's company, which has agreed to buy the building if the foreclosure goes through.

JNC was selected by bank officials from four bidders after it offered the highest price for the Town Center project, according to bank spokesman Geoffrey Caldwell.

The agreement between JNC and the bank includes below-market financing and the bank's payment of all closing costs. Bank officials said the terms were the best they could obtain for a property in foreclosure.

The Town Center owners questioned JNC about the negotiations with the bank. In a deposition in the bankruptcy case, William Wolfe, president of JNC, said that Cohen is a part owner of the Connecticut Avenue building where the Co-op Bank has its headquarters and that JNC oversees the management of that building.

Wolfe said that bank officials first mentioned Town Center to Cohen and him during discussions on landlord-tenant matters. He also said that at the same time the bank was discussing its possible purchase of the Connecticut Avenue building. But he said that the discussions involving Town Center and the Connecticut Avenue building were treated entirely separately and in fact involved different Cohen-related organizations.

The co-op owners have criticized the terms of the proposed sale of Town Center to JNC. "Why didn't they give us that deal?" asked Robert Fuller, president of the cooperative in a recent interview.

Caldwell said the financing had to be made attractive to a developer because "it is a fire sale."

He added, "We are trying to clean up our portfolio, and this is a very big part of that portfolio that makes us look very bad. . . . We had pressure to find some kind of settlement."

In an interview, Wolfe said that the proposed financial arrangements were worked out in "arm's-length negotiations" between JNC and bank officials. He said Cohen did not participate in the negotiations.

The bank and the owners are fighting over two nine-story buildings at 1000 and 1100 Sixth St. SW that contain 128 units each. The stark, twin concrete buildings with huge, floor-to-ceiling windows represented a daring departure 20 years ago when internationally renowned architect I. M. Pei designed them as part of the urban renewal of Southwest Washington.

In January 1981, some of the tenants, primarily mid-level government workers and retired persons, bought and renovated the buildings with an $11.1 million mortgage from the Co-op Bank, converted them into a cooperative and started selling the more than 100 units not purchased by former tenants.

A cooperative has a single, blanket mortgage for an entire project rather than individual mortgages for each owner. If a foreclosure occurs, the owners would have to choose between remaining in the building as tenants or moving out.

At first, Town Center sales went well but then dwindled as high interest rates ravaged sales throughout the housing market. The owners made their monthly mortgage payments, but by the fall of 1981, aware that they were heading for financial problems, they opened discussions with bank officials to work out a solution.

In January 1982, when the owners failed to make their mortgage payment, the Cooperative Bank threatened foreclosure.

The bank later agreed to defer payments for six months, providing that the owners also stop payments on their second mortgage, according to court documents filed in the case.

That second mortgage for $850,000 was held by a partnership that sold Town Center to the cooperative association. The collateral for the mortgage was the unsold units. When the cooperative owners failed to make payments on that mortgage, the partnership refused to release the unsold units, further crippling the sale program, according to the co-op's court papers.

Bank officials and the owners tried for months to resolve the project's financial problems. Fuller and Ira Burney, chairman of the co-op's "work-out committee," said the bank proposed a plan that called for selling some of the units to a group of investors. They added that their financial and legal advisers told the owners the scheme was untried and too risky.

Bank officials said they had negotiated in good faith and had successfully tried the kind of sale they proposed for Town Center.

In December, the bank scheduled a foreclosure sale of the property for later that month. The day before the scheduled sale, the Town Center owners filed for voluntary bankruptcy.

Fuller said the owners sought the protection of bankruptcy because "we have not been able to come to an agreement that would be fair to our members and protect our members' assets. We are completely frustrated after two years. We would have been back in a rental situation and lose our ownership rights."

The bank has asked the court to dismiss the bankruptcy petition so the foreclosure can proceed. On Feb. 18, the bank finished presenting its witnesses. The co-op began presenting its case on Tuesday and will continue on March 4.

The bank, created by the federal government and initially funded by it, has come under recent criticism in Congress after a federal audit found that 25 percent of its loans, including the one to Town Center, are seriously delinquent. The auditors' report, which has not been made public, attributed the large number of overdue loans to the bank's "deficiencies in organization and in the capabilities and performance of credit staff," accodring to House Banking Committee Chairman Fernand J. St Germain (D-R.I.).

The House Banking Committee has announced plans to hold hearings on the National Consumer Cooperative Bank, probably in March or early April.

Bank officials have told their board of directors to expect to lose about $2.5 million on the Town Center project because of the difference between the accumulated debts on the property and the price JNC is willing to pay.

In January 1981, the Co-op Bank gave the cooperative association an $11.1 million mortgage with an average 13.5 percent interest rate that was renegotiable every five years. The bank also required the association to purchase bank stock with $832,000 of the mortgage. Such purchases were required of all the bank's borrowers to enable the bank to pay back the federal government.

The bank has agreed to give JNC Enterprises Inc. an $11 million mortgage that would cover the entire purchase price. That mortgage would carry an 11 percent rate for 28 years. That interest rate is two to three points below market current rates, according to several local bankers.

One of these bankers said that this seemed like a good rate for the developer, while another said that, in foreclosures, lenders must make the best of a bad situation and sometimes give interest rates as low as 7 or 8 percent.

Asked in his deposition if the bank ever mentioned a purchase of stock as part of the deal, Wolfe said "that was never discussed" by bank officials.

Wolfe also said in the deposition, "We are only interested in the project under the attractive financing arrangements that we have negotiated."

Caldwell said, "It's the best we could get. It is a distress sale; we cannot get prime rate any more. . . ." It is the kind of situation many other banks face "with this kind of market," he said.

Wolfe echoed Caldwell. "It's a distressed property, and all properties are given these terms. It is not out of the ordinary. Banks around the country are doing this every day."

Three other companies submitted proposals to buy the project but offered the bank less than its original mortgage price, Caldwell said. The bank's outside auditor, the accounting firm of Peat Marwick Mitchell, recommended the JNC offer, he said.

Last May, the Cooperative Bank moved into five of the seven floors at the building at 1630 Connecticut Ave. NW. The building is owned by a partnership, called 1630 Connecticut Avenue Associates, in which Cohen is the general partner and one of 27 limited partners. Wolfe has no ownership interest in the building.

JNC Enterprises manages the building for the partnership and has hired a mangagement company to run day-to-day operations, Wolfe said.

Wolfe said in his deposition that he and bank officials joked about giving each other favorable terms in each deal but "aside from a comical joking there were no serious discussion" about linking the two deals.

The bank has since decided not to exercise its option under the lease to purchase the building, Wolfe said.