Equity loans come back with a bite

<p>One collective gasp sucked the wind out of the room when local tax expert Richard Ogg said many on the verge of losing their homes to foreclosure could owe the IRS tens of thousands of dollars.</p><p>That possibility surprised many who attended a two-hour foreclosure seminar Saturday, hosted by Catholic Charities of the Diocese of Santa Rosa. Ogg, an enrolled agent with the Master's Tax Service of Sonoma County, was among several speakers who spoke to about 30 local residents searching for relief from the threat of foreclosure.</p><p>Ogg said there are potential tax consequences for those who lose a home in a foreclosure or short sale who had generated extra money by taking out a “recourse loan,” such as a home equity line of credit or a refinancing when the value of the home was high. This is not good news to those who used the refinance money to pay off credit cards, buy a car or take a vacation.</p><p>“This is not little stuff if you find yourself in this situation,” he said. “Don't hope it's going to go away.”</p><p>The good news, he said, is that those who did not refinance their homes suffer no tax penalty in a foreclosure.</p><p>Speakers at the seminar urged those dealing with foreclosure to prepare for a radical change in lifestyle and to know that there is life after losing a home.</p><p>Another speaker, First Priority Financial mortgage consultant John Scherf, told homeowners that in “these unusual times” many people are going through a foreclosure or bankruptcy. </p><p>“The main thing to keep in mind is that it's not the end of the world,” he said. “The situation you're in now, it's temporary.”</p><p>Linda Green, a local bankruptcy attorney, explained the debt relief route of filing for either Chapter 7 or Chapter 13 bankruptcy, making it clear that such a move is “last ditch option.”</p><p>Chapter 7, the “liquidation chapter,” protects people against the possible tax consequences of a foreclosure.</p><p>Chapter 13, the “reorganization chapter,” could be helpful to those who are behind on their mortgage, helping them pay back some of their debt, based on income, she said.</p><p>One of the homeowners who attended the seminar, a Santa Rosa resident who did not want her name used, said she has been unable to modify two adjustable rate mortgage loans, one for a residence and another for a rental home.</p><p>The tax consequences incurred from a foreclosure or short sale could force many into bankruptcy, she said.</p><p>“What it results in is everyone to have to file bankruptcy in order to sell a home,” she said.</p><p>After the seminar, Marcela Christian, Catholic Charities' foreclosure counselor, said that the current wave of foreclosures is being driven by the loss of jobs or reductions in income.</p><p>Christian, who has been through a foreclosure herself, said she receives about 140 foreclosure-related phone calls a month. There is life after foreclosure, she said.</p><p>“We need to take a moment and adapt to our new reality,” she said.</p><p>You can reach StaffWriter Martin Espinoza at 521-5213 or martin.espinoza@pressdemocrat.com.</p>