Norvail Development Corp., a Rockville-based builder of luxury homes, has found itself in what is becoming a familiar situation for some other local builders: It is suffering from a cash crunch that began when its expensive houses stopped selling and interest payments on loans for the land it bought came due.

In Norvail's case, it owes about $40 million that it borrowed to buy land worth about $60 million, most of it in Potomac, said Arnold Albert, a lawyer retained several months ago to help Norvail come up with a workout strategy for its cash crunch. Albert and partner Emil Hirsch have been negotiating with the company's two main lenders but have yet to come to an agreement on a restructuring of the company's debt, Albert said. He declined to reveal the names of the two banks.

Norvail filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Act on Aug. 16 in U.S. District Court in Rockville.

Norvail has been involved in only one development recently -- Estates of Goldsboro in Bethesda. The rest of its land holdings are in Potomac. In the Bethesda development, Norvail has 26 lots available for luxury homes that would have sold for about $800,000. Four models have been built and have been up for sale for a little more than a year, Albert said. Only one house has sold, to Ross and Waneeta Rosenberg. The Rosenbergs had put down a $100,000 deposit but had not settled on the house. When Norvail filed for Chapter 11, their deposit was put into an escrow account, Albert said, and is not a part of the Chapter 11 proceeding. One other house in the development was under contract when the company filed for Chapter 11, but no down payment had been made.

"Under ordinary circumstances that 26-lot {subdivision}, which had very beautiful homes on it, would have sold out very quickly," Albert said. "As the situation is, it didn't, and that made Norvail's cash situation very weak."

Norvail President and owner Norton Foxman and vice president Robert H. Rosin could not be reached for comment at their Rockville office. The phone in Norvail's Bethesda office has been disconnected.

Norvail has been building homes in the Washington area since the early 1970s. In the past, it was the subject of dozens of complaints about shoddy workmanship to the Montgomery County Office of Consumer Affairs. The company paid out between $325 and $25,000 to buyers of its homes to settle those complaints.