Nestled in a quiet Lewiston neighborhood, the little, yellow, two-bedroom - with its hardwood floors, built-in hutches and one-car garage - was Deborah Lavoie's dream house.

For two years, she lovingly fussed over the place. Lavoie fenced in the yard for her Chihuahua and decorated the area with plants and flowers she'd carried from home to home for years, including her late father's cherry tree. She turned the basement into a workshop/family room and added a new room for storage. Last fall she repainted, replacing old wallpaper and dark paint with the soft yellow and peach colors she loved.

"I had my daughters up at Thanksgiving, they all brought like a pot luck Thanksgiving, and they're telling me 'Oh, this is so adorable! It's so beautiful!'" she said. "Two weeks later I'm calling them up in tears saying 'I had to sign my house for sale last week.'"

Like a growing number of Mainers, Lavoie was facing foreclosure.

And like a growing number of Mainers, she went through a short sale - selling the house, with the bank's consent, for less than what was owed - to prevent that foreclosure.

Foreclosure would have mortified her, she said. It would have ruined her credit for up to 10 years and would have shot her chances of getting another mortgage any time soon.

"I had to get rid of my dream home in order to save my life," she said.

Because no one fully tracked foreclosures in Maine before 2007, it's impossible to gauge precisely how the foreclosure rate has changed over time.

The Mortgage Bankers Association, which tracks mortgage delinquencies and foreclosures using data from its members, said it represents about 80 percent of the mortgage industry in Maine. It's shown foreclosure rates steadily ticking up in Maine, reaching 2.36 percent at the end of last year, the highest level since the association started keeping records in 1979. Maine's rate is higher than the U.S. average of 2.04 percent.

State law recently required the Bureau of Consumer Credit Protection to collect foreclosure numbers.

Industry experts - lawyers, credit counselors, real estate agents and property auctioneers - say they've seen the increase firsthand.

"It's definitely higher than previously," said Jackie Wiegleb with Maine Consumer Credit Counseling Services. "The tough case for us, basically, is when someone has a high fixed cost of living - so, the high car payment, the high mortgage, those contracted payments - that's a really tough situation because there's no wiggle room, there's no altering those payments. And so those are the ones we're seeing. With the high cost of living, it is really, really pushing them."

Experts say there are a lot of reasons why more people are falling into foreclosure:

• Housing prices are low - the once-hot sellers' market has turned into a cool buyers' market - so homeowners now can't typically sell their homes to pay off their mortgages and lower their cost of living, as they could have a couple of years ago.

• Adjustable-rate mortgages - popular at the height of the housing boom - are sliding into higher interest rates and higher mortgage payments that some homeowners can't afford.

• And second and third mortgages - also popular at the height of the housing boom - have led some homeowners to overextend themselves, so a job loss, medical emergency or divorce sends them over the financial edge.

"It was very, very popular since 2001, right after 9/11, when the interest rates dropped," Wiegleb said. "The marketing was to see your house as an ATM."

Foreclosures have increased so much in both Maine and across the country that even lenders are looking for alternatives. They don't want the hassle or expense of seizing more homes and then trying to sell them to get their money back.

"Lenders' and borrowers' interests are perfectly aligned in avoiding foreclosure," said John Mechem, spokesman for the Mortgage Bankers Association. "Our companies tell us it costs them $40,000 to $50,000 each time they have to foreclose on a home."

Short sale is an increasingly popular alternative.

"It's not a new tool, but it's one that's getting a lot more attention," Mechem said.

In a short sale, the homeowner is allowed by the lender to sell the home for less than the mortgage owed. The lender agrees to accept that lesser amount and wipe out the debt. There are downsides to a short sale for the homeowner. While not as bad as a foreclosure, it does impact the homeowner's credit, the homeowner must sell the house and find a new place to live, there are tax consequences and the process can sometimes be frustrating and long. But proponents say the major upside - avoiding foreclosure - makes it worthwhile.

Lavoie bought her Lewiston home at the height of the hot housing market. For two years, her adjustable rate mortgage was under $1,000 a month. Then, a couple of months before her interest rate was set to adjust for the first time, she panicked.

"I saw a friend who started out with a mortgage payment of $1,000, which was fine. With the ARM, within three months it was up to $1,630," Lavoie said.

Refinancing offers had already started flooding in, and she decided that would be the way to go. Lavoie chose a new lender she liked, one with the lowest interest rate she could find. Her new, fixed-rate mortgage would cost her $1,200 a month - a higher payment than the Wal-Mart distribution center employee was used to - but it was doable.

Then closing came. She says she was told the mortgage would be over $1,500 a month.

That was 80 to 90 percent of her income.

Lavoie, who owned a condo before her dream home, knew she could have walked away from the table. But she had already paid around $3,000 in fees. She was terrified of returning to her adjustable rate mortgage. She felt put on the spot.

Lavoie signed the paperwork, figuring she could find a better deal, refinance again and get out of the situation.

She soon learned her new lender had a hefty early-payment penalty. Paying off the loan within its first three years, she said, would cost her $9,000.

With a $1,500-a-month house payment sucking nearly all of her income, Lavoie started running late on other bills for the first time in her life. She cut her lifestyle, "living, like they say, on Ramen Noodles."

"I was going to try to stick it out for those three years," she said. "Then life happened."

Lavoie was injured at home and couldn't work. Short-term disability replaced half her income, but it wasn't anywhere close to what she needed for the mortgage.

She considered selling her car to pay her mortgage the first month. But when doctors told her she'd be out of work longer than that, she realized there was no way she could keep up with the house payments. And once they lapsed and late-payment penalties started adding up, she realized she couldn't dig herself out of such a financial hole.

Foreclosure loomed as a real possibility.

"To me that was way worse than losing the house. Having to have all of my neighbors read (in the newspaper) that I'm not just selling the house and moving, it's been taken. It's been taken away from me," she said.

Lavoie called her lender to let it know she was having problems. Then she called Brenda Fontaine, a real estate agent at ERA/Worden Realty in Auburn, to put the house up for sale.

Although home sales don't always happen quickly or easily, Lavoie got three offers within three weeks. But the offers were far below the amount she owed on the house. Her lender agreed to a short sale. It accepted $105,000 to wipe out the mortgage worth over $150,000.

Lavoie walked away from her dream home.

"It was a very, very emotional thing to do," she said. "But the end reward is I know I did the right thing."

Because short sales are a private agreement between a borrower and a lender, no one tracks them in Maine. But real estate agents say they've seen an increase.

Shawn Losier, a designated broker with Green Tree Realty in Portland, has been working in real estate for 10 years. In the past, he said, "short sales were relatively unheard of." Now they're 50 percent of his business.

"The whole system is currently clogged with people who are behind on their mortgages, and the banks are really not situated or prepared to take all these properties," said Losier, whose firm has three or four agents who cover Lewiston-Auburn. "They're not in the business to own properties. They're in the business to lend money."

Two years ago, short sales accounted for just 1 percent of listings for Fontaine, Lavoie's real estate agent. Now they're about 10 percent.

She now has special pages on her Web site geared specifically to short sales.

"You should see the letters we've received from some people after we've helped them out," Fontaine said. "We have the most beautiful letters that we've received from people being so thankful for getting them out of what they were in. It brings tears to your eyes."

Short sales aren't for everyone. Experts say lenders generally won't agree to one unless the homeowner can prove a hardship, like a job loss or divorce. While short sales won't affect a homeowner's credit as much as a foreclosure, experts say they will affect it somewhat. And even though recent changes in federal law lessened a homeowner's tax liability in short sales, the tax issues surrounding them can be complex.

Some homeowners might find another solution - a second job, refinancing or bankruptcy, for example - fits their situation better.

But a short sale has been the right choice for many stressed homeowners, including Lavoie.

She recently moved from her little yellow home to a rental house in another part of the city. The rental is OK, she said. Her landlord is nice and she can keep her dog.

Heating the old place, though, costs her a fortune. She doesn't have a garage, can't remodel. She had to leave all her beloved plants, including her father's tree, behind.

Still, it's allowing her to save enough money for a down payment on a new dream house. And since she didn't go through foreclosure, she said, she'll be able to get another mortgage in a year or two.

"I'm hoping that out of this, people will realize there's another way," she said.