Foreclosure proceedings have begun on the Bradley Square property in Oak Bluffs, four years after the Island Affordable Housing Fund began an ambitious redevelopment scheme that never got off the ground.

The nonprofit housing fund — recently renamed the Martha’s Vineyard Housing Fund — owes the Martha’s Vineyard Savings Bank almost $750,000 in principal, interest and late fees on a mortgage that has seen no payments made on it since at least last year.

Housing fund leaders announced the foreclosure in a press release yesterday, also reporting that the bank has frozen their accounts, including about $53,000 in restricted funds and another $17,000 to pay operating expenses for the financially-troubled organization.

In an interview with the Gazette, executive director T. Ewell Hopkins and board chairman John Early said in response, the fund has set up an account at the Edgartown National Bank where some $4,000 has been deposited.

The housing fund put the Bradley Square property up for sale last September, after it became clear it could not raise the money necessary to complete the project. Mr. Hopkins said the fund stopped making payments on the mortgage at that time. The property, which was bought for $905,000 at the peak of the latest real estate boom in 2007, was most recently listed for sale at $790,000. Mr. Hopkins and Mr. Early said the bank has made it clear that it will not accept a deed in lieu of payment or a short sale, and that the property will be sold at auction. No date has been set, and notice of foreclosure has not yet been published.

Mr. Hopkins and Mr. Early said the bank informed them of the foreclosure proceedings and the freezing of assets last Wednesday.

The latest development raises questions about the future of the fund, an organization established to raise money to support various affordable housing initiatives on the Vineyard. The fund has been foundering for the last two years, since the departure of its former executive director who was highly paid and, it was later revealed, spent lavishly on summer fundraisers, among other things.

Mr. Hopkins called the foreclosure a “devastating blow,” but said the board had unanimously voted to continue operations for as long as possible.

“We have a matter of weeks to get back on our feet before the new round of rent and other bills come in, that we’re obligated to. It’s that acute,” Mr. Hopkins said.

Leaders at the Martha’s Vineyard Savings Bank said yesterday they could not comment on the specifics, although they did speak generally to the issue of foreclosures, which are rare at the community bank.

“We take the results of a foreclosure action seriously with all our customers at the bank and work hard to avoid situations that would lead to such an event,” said bank president Chris Wells. “We have a very strong track record of exhausting all available resources to borrowers before foreclosing,” he added.

Mr. Wells also would not comment on the frozen accounts. In banking terms the action taken to freeze accounts in the event of a foreclosure is called a right of setoff and is considered a normal practice.

And while Mr. Early said the fund had been surprised by the move last Wednesday, he did not blame the bank.

“The bank has been overly generous in continuing to carry the mortgage without payment,” Mr. Early said. “Probably if this was in different circumstances, in a different community, foreclosure proceedings might have been started a lot earlier. Bankers do what they have to do.”

Mr. Hopkins said he was surprised at the decision to freeze assets, particularly the money in the restricted account, which had been earmarked for specific purposes. About $18,000 of it was for child care assistance, the remnants of a $100,000 grant, which was to have been expended by December.

Other money was intended to fund second mortgages for first home buyers. Mr. Hopkins said.

“So even though we were having trouble paying other bills, we never considered those to be monies available to pay bills,” he said, adding: “That was a complete shock and surprise last week. I thought they always understood . . . the importance of the work that we were doing.”

Mr. Hopkins and Mr. Early said they are in regular communication with bank executives, and Mr. Hopkins remained optimistic that the frozen accounts would be released.

“They have not seized the money. We’re very confident we can reach an agreement with them where the bank will release those funds so they can be applied as originally determined. I’m very confident of that,” he said.

He said the fund is discussing hiring an attorney, although none has been engaged yet.

The Bradley Square redevelopment predates Mr. Hopkins’s tenure as executive director and began at a time when the fund appeared to be traveling well under his predecessor, Patrick Manning.

The property was the site of the first African American church on the Island. When it came up for sale in 2007, some $200,000 was raised within a period of a few days for a deposit on the property.

In addition to its historical importance, the building was located within the budding arts district of Oak Bluffs. The vision at the time called for providing affordable housing as well as artist work spaces, a community center and a museum to celebrate the legacy of the late Rev. Oscar E. Denniston.

The redevelopment was originally planned to cost about $5 million.

But the purchase was ill-timed, just before the real estate crash of 2007 and the ensuing sharp decline in charitable donations. The project also went through several permutations in planning.

It marked a turning point in the fortunes of the housing fund, although the depth of the organization’s problems did not become clear until November 2009, three months after Mr. Manning left, when it was unexpectedly announced that the fund could not make a $20,000 monthly payment to a rental subsidy program run by the Dukes County Regional Housing Authority.

There were other problems, too. A shortfall of about $50,000 from the sale of units in an affordable housing development at Jenney Way in Edgartown was rolled into the Bradley Square mortgage.

The fund has struggled since, shedding staff and abrogating former funding commitments to help fund affordable housing programs on the Island.

Despite it all, Mr. Early said yesterday that he remains optimistic, and he and Mr. Hopkins spoke about the lessons learned.

For one, the fund would never undertake such a speculative development again, they said.

“The idea of taking on a $700,000 or so note, with a $200,000 down payment, without having money in the bank to back it up, is not something my current board nor I would recommend,” said Mr. Hopkins.

And Mr. Early said the fund-raising practices have shifted from high-profile summer galas and telethons to quiet, direct approaches to private donors. “The flamboyant methods — which were successful — we are not going to do any more,” he said.

“I believe and more importantly my board believes that we can stand back up from this and continue to raise funds to address the mission at hand,” Mr. Hopkins said. “We don’t see anyone else attempting to do that, so we feel compelled to continue to do it as long as we can.”

This story has been changed to correct identification of the fund.