An ambitious federal and city plan to undo the damage done by a mortgage scandal that left behind hundreds of abandoned or dilapidated buildings across Harlem and Brooklyn hit a roadblock earlier this month.

On May 7, Alpha and Omega, Inc., a Brooklyn nonprofit that had owned 58 properties that were embroiled in the 203(k) debacle, sold 35 of those buildings for an undisclosed price to J.P. Apartments, a management company that currently owns about 70 other rental properties in the Bushwick area.

These buildings are part of a parcel of about 500 properties for which the federal Department of Housing and Urban Development and the city Department of Housing Preservation and Development planned a $160 million rehab. Until two weeks ago, HUD had been proceeding with foreclosure actions against Alpha and Omega for failing to make payments on their mortgages. (In the scandal, real estate speculators and appraisers sold buildings for wildly inflated prices to nonprofits that qualified for federally guaranteed mortgages.)

Once the buildings were foreclosed on, HUD planned to give HPD the cash to rehab them and pass them on to selected for-profit or nonprofit developers. At many of these 35 buildings, tenants had been hoping to take advantage of HPD programs so they could rehab and own the homes themselves.

“What’s so frustrating about this is that the people in these buildings were so happy about the possibility of owning their apartment,” said Sara Dunne, a tenant at 135 Bleecker Street in Bushwick.

HUD says it’s not worried about the recent sale, though. The only way the new owner can stop the foreclosure, said agency spokesperson Adam Glanz, is by paying off the properties’ huge mortgages–as much as $275,000 for buildings worth only $100,000. And he said HUD won’t negotiate a reduced mortgage.

But if the agency doesn’t cut a deal, vowed the J.P. representative, who spoke on condition of anonymity, he’ll take it to court. And he thinks he can win. “My lawyers tell me I have a very good case in terms of a foreclosure defense,” he said.

That proposal worries tenants, who had thought they could finally see the light at the end of what’s been a tortured 203(k) tunnel. “We could be great homeowners,” says Dunne. “Now we feel like we might have to start over. It’s very scary.”