Big loans, short sales

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: refinanced once, four years later, taking out $75,000 to do improvements. At the time, the house was appraised at $450,000, seeming to offer a sufficient cushion.

But then the market tanked. Last winter, when the Kellys first began looking into selling, they knew any offer would be far below what they owed, and they could not afford to make up the deficit. So they began talking to Citi about their options. They did not want to surrender the house to foreclosure, ruining their credit, hurting their neighbours and betraying their image.

“We’ve never defaulted on any obligation through our whole lives,” said Mike Kelly, a former Marine who had served in Vietnam.

Citi sent the Kellys a letter saying, “We look at mortgages as partnerships.”The lender said it would be willing to let the home be sold for its fair market value, “even if the proceeds are less than the total amount owed.” Additional payments over the decades were not mentioned.

The Kellys had to jump through many hoops, surrendering their financial documents and explaining why they merited approval for a short sale. Only when a buyer was in hand and a price had been negotiated did Citi demand the $40,000 promissory note from the Kellys.

A spokesman for Citi, while declining to comment on the Kelly case, said the amount each seller is asked to provide is determined by “affordability criteria,” and the sum is negotiable. But the e-mail exchanged between the Kellys and their Citi case worker do not show much evidence of negotiation.