Potomac Housing Corp., a fledgling Maryland home builder that has completed two small developments, has three larger ones under way and two more on the drawing boards, stands to lose what is left of its assets over the next few weeks as creditors claiming more than $5 million in debts close in on the beleaguered company.

Judith Sturtz Karp, one of the lawyers representing Potomac, said the company is liquidating its assets and helping two banks that lent the company construction funds to proceed with "friendly foreclosures." She said that the company and its creditors -- which number more than 200 -- are trying to negotiate a settlement of the claims without the delay and expense of formal bankruptcy proceedings.

"The consensus is that Potomac will not exist as a company after this liquidation," said Roger Frankel, a lawyer for a committee representing 200 subcontractors and tradesmen claiming Potomac owes them $3 million in unpaid bills. "We are attempting to come up with a workout plan for Potomac Housing that will get money to the creditors and be fair to everyone."

Potomac, which is the trade name for Shapiro and Siftens Inc., was formed less than three years ago. The company aggressively purchased land in Montgomery and Prince George's counties for medium-sized residential subdivisions. The liquidation includes either sale or foreclosure of three unfinished projects and two large parcels of land.

The Shapiro and Siftens firm is named for two Maryland residents active in the construction industry who started the business. Robert Siftens is president of the company and Charles Shapiro is both a shareholder and a creditor, owed more than $1 million by Potomac.

There are also some home buyers, possibly as many as 100, who made deposits for houses at Potomac's projects six months ago or longer who are seeking to get their money back.

"I put down $2,000 a year ago last spring and they promised me then the house would be done in six months," said one prospective buyer who asked not to be named. "They stopped work on my house last fall and it still doesn't have any electricity or plumbing in it. When I call them, they keep putting me off, telling me everything will be finished soon."

Karp said that the decision to liquidate was not a "one-step process," but one the company came to slowly.

"They weren't lying at that point, it was just an optimistic answer," Karp said. "They hoped to be able to build out all their developments and close down after that, but they later realized that wouldn't work."

Karp said the deposits are safe in escrow accounts and the company is sending out letters releasing people from their contracts and offering them the deposits back. She said it is unclear at this time if any of the builders interested in buying Potomac's unfinished projects would be willing to honor contracts written by Potomac.

At Potomac's most ambitious project, a wooded community called Oakhills, off Rte. 198 in the Montgomery County town of Burtonsville, the development stands quiet with only a few completed houses, several paritally built town houses and a large expanse of cleared land.

Oakhills was to be a community with 440 homes in the $100,000 to $130,000 range, a lake, biking trails and running paths. Potomac sold 200 undeveloped building lots at the development to another builder several weeks ago, and on April 21 the remnants of the development are scheduled to be sold at a foreclosure auction initiated by United Savings Bank of Northern Virginia, one of its lenders.

Neither United Savings Bank nor Potomac's other construction lender, Congressional Funding Inc. of Kensington, would say how much money they lent Potomac, but both banks said they expect to be able to foreclose on the property used as security and cover their losses. These debts are believed to total at least several million dollars.

In addition to the $3 million in building industry debts and $1 million owed Shapiro, Potomac owes $485,000 on lines of credit to D.C. National Bank and United Savings Bank. Karp, a lawyer with the D.C. firm of Zuckerman, Spaeder, Goldstein, Taylor and Kolker representing Potomac, said the company hopes to be able to raise between $1.2 million and $1.5 million from the liquidation to help pay the unsecured debts.

"We're very sorry that this has happened to Potomac because they were a fine builder with a quality product," said Susan Matlick, executive vice president of the Suburban Maryland Home Builders Association. "They had only been building a couple of years but they had built some nice homes which won them some prizes for quality."

The quality of the product, however, may have been what got the company into trouble, Karp said.

"Some of the products were a little bit too expensive for the markets where they were building," Karp said. "If they just could have moved them to the Potomac area, I think they would have sold better." Karp said there were also some management problems and that the company had bought land aggressively because most large lots in the two counties were nearly gone when the company started in the business.

The firm advertised its development in Laurel, the Townhomes of Mayfair, last fall, offering 9 percent financing on the $100,000 homes and quality detailing, such as "European kitchens," skylights and cypress exteriors. Karp said 34 of the projected 183 units had been built and sold and that Congressional Funding would be foreclosing on the remainder sometime next month.

Potomac ran into "cash-flow problems" late last summer and was forced into talks with its creditors when the problems became critical in the last three months, said David Bowman, assistant vice president for United Savings Bank.

In addition to the projects at Oakhills and Mayfair, Potomac was working on a town house development in Germantown called Logan's Port. The company had built and closed 38 units and has 20 left in various stages of completion which it plans to sell. Congressional also will be foreclosing on a large piece of land near Olney that was to be a 100-unit development, and Potomac will sell a large tract near Bowie that was to be a 222-unit single-family development.