Montgomery County has dropped a controversial plan to exempt developer Anthony Natelli from a county law requiring him to build 60 homes for moderate-income buyers in his luxurious Avenel housing and golf course complex in Potomac.

Natelli's offer to give the county at least $4 million to construct an apartment building for low- and moderate-income families in downtown Bethesda instead of putting the units in Avenel touched off complaints last summer. County officials said the money would have paid for 90 to 110 units.

Avenel homes cost $600,000 to more than $1 million, but county officials said the moderately priced units there will range from $70,000 to $75,000. The income limits for eligible purchasers will range from $26,000 for a single person up to $39,500 for a family of five or more.

Leaders of community groups, who had protested that neighborhoods in the eastern part of the county had more than their share of low-cost housing, welcomed the county's decision.

"Our community representatives are generally pleased," said Stuart Rochester, vice president of the Columbia Road Citizens Association in Burtonsville. The association's view, he said, is that "all areas should share in the affordable housing and all builders and developers should follow the regulations."

"It looks like justice has prevailed," said Marc Richman, a Bethesda resident who had objected to the plan to build an apartment building downtown.

Under county law, a development with more than 50 homes must contain some units that moderate-income buyers can afford. The goal of the county's widely praised Moderately Priced Dwelling Unit program is to prevent concentration of poor residents in a few neighborhoods. A 1988 change in the law, however, permits the county to approve "alternative" ways to meet the requirements. Since then, three alternate plans have been approved, but they involved fewer units in less-exclusive neighborhoods.

Richard J. Ferrara, director of the county's Department of Housing and Community Development, said in a memorandum to County Executive Neal Potter that opposition from several community organizations, the county planning board and the Housing Opportunities Commission, which is the county's housing agency, convinced him that the moderately priced homes would have to be built in the Avenel development.

Another factor was the downturn in the county's housing market, he said. Natelli had planned to use profits from sales of some of his Avenel houses to finance the Bethesda apartment building. "Given the current economic conditions and real estate market," these sales might not produce enough to finance the project, Ferarra said.

But Ferrara still believes putting the units in Bethesda rather than Avenel was a good idea and that the objections "were all based on ... appearances, rather than substance"and what appeared to be the "unfairness ... of a wealthy developer in Potomac being able to 'buy his way out.' "

Ferrara said that if similar opportunities arise in the future "in other, less visible and controversial circumstances," he intends to pursue them.

Potter agreed, saying Avenel "is less advantageous" for moderate-income homeowners because the occupants will be isolated from public transportation and other facilities. Putting low-cost housing in developments throughout the county prevents "ghettos of high-income residents and low-income residents," but "the disadvantage is isolation" for many people, Potter said.

The county housing agency, however, welcomed the decision.

Although the Bethesda project would have produced more dwellings, "we felt it was better not to erode some of the basic tenets" of the law, including one that says all communities should have some moderately priced housing, said Bernard L. Tetreault, executive director of the Housing Opportunities Commission. He said that since the program was created in 1974, more than 8,000 moderately priced homes have been produced.

Natelli was "disappointed by the misperception of what he was trying to do, which was to create almost twice as many units that would be part of low-cost housing stock forever," said Donald L. Woodsmall, acquisitions and development director for Potomac Investment Associates, Natelli's company. Natelli could not be reached for comment.

Buyers of the moderately priced housing built under the county program can resell their homes after 10 years, but they must split any profits they make with the county government.

Natelli began work on the Avenel residential development six years ago, and won an agreement from the county planning board that he would have to construct only 60 affordable housing units instead of the 107 required under the county's formula. The developer also got approval from the board to put all of the houses in one cluster instead of scattering them throughout the development as is normally required.

Buyers of the moderately priced houses will have to pay a $164.60 monthly homeowner fee, a level far above the average $25 to $75 charged in many Montgomery County developments.

Woodsmall said his company hopes to find a lender who will agree to give buyers so-called negative amortization loans. These mortgages allow borrowers to pay a portion of the monthly payment and add the remainder to the outstanding balance of the mortgage.

For example, a 30-year, $60,000 loan at 10 percent interest would require monthly payments of $526. But instead of paying the full amount each month, homeowners could pay 7 percent interest, resulting in a $369-a-month payment, and the remaining $157, which would be almost enough to cover the homeowner fees, would be added to the mortgage.

More than 400 of the total of 827 homes planned at Avenel have been completed, according to Woodsmall. In addition, the company proposes to build a 224-unit retirement community and a facility with 44 nursing beds.

With construction of the retirement community, probably at least two years away, the developer will have to build another 33 moderately priced homes, according to Woodsmall. If these units were put into the same cluster with the 60 to be constructed now, Potomac Associates might be able to lower the monthly homeowners' fees, he said.