The National Consumer Cooperative Bank will be allowed to go ahead with its attempts to foreclose on a large Southwest D.C. housing cooperative under a decision handed down by the U.S. Bankruptcy Court this week.

Last December, the bank instituted foreclosure proceedings against the Town Center Cooperative, a 256-unit project at 1000 and 1100 Sixth St. SW. The day before the foreclosure sale was to take place, the co-op filed for voluntary bankruptcy, requesting an opportunity to reorganize. That action resulted in an automatic stay on the bank's efforts to foreclose.

The Co-op Bank lent the Town Center residents $11.1 million in January 1981 to purchase their two 128-unit structures and to convert them to a cooperative. Many former tenants purchased their units. Public sales also went well initially, but slowed as conditions in the Washington area real estate market deteriorated in the summer and fall of 1981.

That September, the co-op contacted the bank to ask for a restructuring of the loan. In negotiations that continued until December of 1982, both the bank and the cooperative presented a number of proposals, but were unable to reach final agreement on any of them.

Town Center continued full payments on its loan until January 1982, when the owners asked the bank to accept partial payments. The bank rejected that proposal.

The bank did agree to defer interest on the loan and to waive any default for six months, but only if the Town Center owners also stopped payments on the project's second mortgage.

That trust, for $850,000, was held by a partnership that had sold the property to the residents. The security for the loan was the cooperative's membership certificates--the ownership papers--for the unsold units.

The Co-op Bank had guaranteed that the second trust holder would accept such an arrangement without declaring the loan in default, witnesses for Town Center stated in their court testimony.

When the cooperative failed to make payments on that second mortgage, however, the partnership refused to release the certificates, further crippling the co-op's sales efforts.

By the end of 1982, the loan balance had grown to more than $13 million, because of the missed payments and because the mortgage payments were graduated, with negative amortization (deferred interest).

In the bankruptcy proceedings, Town Center had the burden of showing there was "equity" in the property--that is, that the property's current value exceeded the debt on it. The cooperative also had to show there was a reasonable likelihood that the bank would be repaid.

The total debt was much more than the property's value, witnesses for the bank testified in court. An appraisal expert for the bank put the project's worth at a maximum of $11.7 million.

In announcing his decision in the case, Bankruptcy Court Judge Roger M. Whelan said he believed the property's worth "would not exceed some $12 million."

Witnesses for the co-op presented two proposals they said would have protected the bank's loan and the residents' down-payment investments. One of the plans envisioned selling out the remaining units in the project over a 14-month period. The net proceeds would have generated about $13.5 million, a Town Center witness testified.

The co-op's other proposal included many assumptions that were not "reliable," Judge Whelan commented. Among these were a further deferral of interest payments on the bank's loan. The bank has strongly indicated that it only would accept a solution in which mortgage payments are guaranteed for at least the next two years.

The bank also stressed in court that the property's income would be insufficient in the foreseeable future to cover operating expenses as well as debt service on the mortgage. Approximately 70 of Town Center's apartments are still vacant.

There would "continue to be a deficit" of funds to meet the mortgage payments even if the co-op made a special assessment of its members and if there were a reduction in operating expenses in 1983 from their 1982 levels, Whelan stated in announcing his decision. The co-op incurred many charges starting up and improving the property last year that won't recur this year.

Town Center will appeal the Bankruptcy Court's decision to the U.S. District Court, announced Ira C. Wolpert, one of the cooperative's attorneys. Hearings on that appeal could take place in as little as two months, he stated.

The bank has not decided yet if it will reissue its foreclosure notice, Richard A. Brown, an attorney for the bank, said Wednesday. A foreclosure sale could not take place for at least 30 days after the notice is reissued, he said.

The Co-op Bank also will continue the negotiations with the Town Center's residents that restarted several weeks ago, said the bank's vice president and general counsel, Richard Gross. Attorneys for both sides have expressed optimism that an out-of-court settlement can be reached.