Middle Class Between a Shock and a Hard Place : Earthquake: Many earn too much to receive grants, yet are too deep in debt to assume a government loan.

One day Lynn Solky was a taxpaying citizen who ran a travel agency and shared a condominium with her husband in Sherman Oaks.

The next day she was a homeless woman with a damaged business.

Like thousands of San Fernando Valley residents, Solky’s life came tumbling apart when the Northridge earthquake shook the Valley.

Frustrated and bitter, Solky says that she has yet to hear from the Federal Emergency Management Agency and that she has been unable to borrow against the equity in her condemned condo to make a down payment on a new house for herself, her husband and her elderly parents, whose apartment complex also was trashed in the quake.

“What annoys me is that people in the mainstream who work, who pay taxes, who are in the system are not getting help,” Solky said. “We support the system, why can’t the system support us now?”

Solky and other quake victims, who describe themselves as middle class, say they are being forced to rebound from the disaster by applying for federal loans they cannot afford to pile on top of existing debts such as mortgages and car payments and their kids’ college tuition.

For some, last month’s quake threw barely comfortable lifestyles into a tailspin. And they will only begin to recover if and when they get financial assistance to replace lost possessions and repair their damaged homes or finance new ones.

“The top 20% of the population has enough money to take care of their problems and the bottom 20% gets help from the government,” said Richard Close, president of the Sherman Oaks Homeowners Assn., whose community was particularly hard hit by the quake. “It’s the 60% in the middle that nobody is addressing.”

This scenario has angered some Valley residents who say the government relief system punishes the middle class by serving only the poor.

Nancy Bolton, a demographer at the UCLA Business Forecast Project, is not surprised that middle-class victims are resentful about the degree of aid--or lack thereof--being offered to them.

“Most of our taxes go to help people in need and now they are the people in need,” Bolton said. “There is a very large sense of disappointment.”

Since it is likely that the bulk of the federal dollars will be used to rebuild infrastructure and provide emergency food and shelter, Bolton wonders how well the middle class will rebound from its quake-induced losses.

“What they have experienced is an extreme loss of wealth,” Bolton said. “That certainly is a problem for the victims, some of whom won’t be able to replace what took them years to build up.”

In Lake View Terrace, Rick Olguin ponders his fate as he stands among a lifetime collection of rare Victorian paintings, about 50 of which were ruined when they fell off the walls.

Olguin, an amputee, stood in a FEMA line on a prosthesis and his left leg for two hours, only to be told that he and his wife do not qualify for a grant because they earn too much money.

But after using his last $250 to pay a plumber to fix their quake-damaged pipes, Olguin says he is too poor to take out a loan.

“I was in a state of shock when they told me,” Olguin said. “We’re middle-class, tax-paying, law-abiding citizens, but we’re not poor enough for FEMA.”

Olguin’s disenchantment was echoed by David Gray, a Valley traffic officer, whose Simi Valley home also suffered quake damage.

“I’m so mad at this government,” Gray said. “We’re supposed to feel good about the government loaning us money?”

Gray’s wife, Suzanne, said she was told by FEMA workers that she and her husband do not qualify for a grant and that they should apply for a low-interest Small Business Administration loan to repair their home and replace their lost possessions. They estimate that the bill could be as much as $20,000.

“We told them we are house-poor,” Suzanne said. “All of our money goes into our house and we don’t have money to fix it.”

Already saddled with mortgage payments and college fees for their two sons, Gray said the quake may foil his plans to retire from the Los Angeles Police Department in three years. He fears that he will no longer be able to “enjoy the fruits of life I had earned.”

“Like every middle-class person, we live right up to our means. . . . You’re always struggling,” Gray said. “Now I’m going to go deeper and deeper into debt. We’re all going to slip a little further back.”

FEMA spokeswoman Rita Kepner said confusion persists over who qualifies for aid from her agency.

“It’s not so much how much money you make, as it is what kind of damage you suffered,” Kepner said. “This is an emergency disaster program, not a commercial insurance program. We are a program intended for urgent and necessary needs.”

Victims displaced by the quake qualify for temporary housing regardless of income, but the length of time that the housing will be provided will vary for victims depending upon their needs, Kepner said.

FEMA grants also may be available for low-income victims who suffered real estate damage or property losses but who have limited ability to repay a loan, said SBA spokesman Rick Jenkins. For example, an unmarried applicant who earns less than $10,455 annually may qualify for a FEMA grant, as could a family of four that earns less than $17,938 each year.

Homeowners, renters and business owners who exceed the income limits, and who SBA processors determine have a good ability to repay a loan, are directed to apply for an SBA loan, Jenkins said. Those can be as much as $200,000 for real estate damage and up to $40,000 for personal property.

“The vast majority of people will come to SBA because we are the government’s primary form of long-term recovery,” Jenkins said.

But it is that alternative that frustrates quake victims such as the Olguins, who live paycheck to paycheck and have little or no savings.

“It doesn’t matter if you are poor, middle class or wealthy: If you don’t have it, you just don’t have it,” Charlotte Olguin said. “To me, that’s the bottom line.”

Solky said she, her husband and her parents are staying with their son in North Hollywood until they can obtain financing for a new home that they plan to share. Solky and other owners at her condominium complex plan to jointly apply for a $1-million loan to repair their building, but more immediately, she needs a source of funds so she can make a down payment on a new home.

“We are not asking for food stamps or free housing,” Solky said. “We’re looking for assistance so that we can stay in the mainstream.”

Unless quake victims receive restructured home loans and favorable treatment from FEMA and lending institutions, they may be unable to absorb “the financial aftershock of the Jan. 17 quake,” said Los Angeles City Councilman Zev Yaroslavsky.

Homeowners group President Richard Close pondered the quake’s effect on his community.

“The middle class for most of the south Valley is made up of people who used to have a lot of equity in their houses,” he said. “On Jan. 17, a lot of that equity disappeared, so they may not be middle class any more.”

As a result, possibly the most serious effect of the Northridge quake may be the shock waves into the future, Close said.

“Even before the earthquake, there was the perception that the middle class was going to move out of the Valley,” he said. “Whether this is going to precipitate that move, I don’t know.”

* LAST TENT CITY CLOSED: Valley victims move indoors as a big storm approaches. B1