These aren't just perilous times for Minnesota homeowners worried about losing their houses.

A cash-strapped statewide network of foreclosure prevention counselors was rescued Tuesday by a $1 million grant from the Minnesota Housing Finance Agency.

The funds, which include a $500,000 grant contingent upon getting matching grants, will help keep 74 foreclosure counselors at work until federal funding arrives this spring. Those federal dollars aren't guaranteed, however, so the Minnesota Home Ownership Center, which oversees that network, is working hard to raise several million dollars, just in case.

"This is absolutely critical; it's huge," said Julie Gugin, the center's executive director. "It will keep our counselors working."

The cash crunch comes in the midst of what's likely to be the second worst year on record for home foreclosures and at a time when homeowners are facing increasingly dire circumstances. An extension of unemployment benefits has expired and Congress has yet to renew them. Home prices have continued falling. And lenders are swamped with an unprecedented supply of houses that owners can no longer pay for.

On Wednesday, research firm RealtyTrac said 12 percent of all home sales in Minnesota during the third quarter were houses that have been through foreclosure. Nationwide, a quarter of all sales were foreclosures. Statewide, that number is down from last year, but at the current pace of foreclosure activity, the Home Ownership Center estimates that by the end of the year there will be a 13 percent increase in the number of foreclosures.

Ed Nelson, communications manager for the Home Ownership Center, said that in 2009 about 16,000 people sought counseling services, and he anticipates similar demand in 2010. "It is a perfect storm in that there's an increasing need for foreclosure counseling service and at the same time we're seeing decreasing availability in funding," Nelson said. "Minnesota homeowners are still needing these services at a time when a lot of nonprofits might have to let staff go."

The Minnesota Home Ownership Center, often cited as a national model, is connected to a network of 24 nonprofit and government organizations throughout the state. Three years ago housing counseling was only a part of the services that it provided, but today it represents the bulk of what they do. Providing long-term housing options is the primary goal, Nelson said. Sometimes, that simply means helping homeowners navigate through the foreclosure process.

The centers, which include nonprofits and government offices that must abide by a protocol established by the Twin Cities-based Home Ownership Center, are operated independently and they must agree to a certain set of expectations and outcomes. So far this year those groups are able to keep half the homeowners who come to them out of foreclosure -- one of the highest success rates in the nation.

That includes people like Robin Thomas, a nurse who had owned her suburban Anoka County house for 14 years when her 40- to 48-hour work week was cut by more than half. She fell behind on two house payments and didn't know what to do. She called the HOPE hotline, which referred her to a counselor at the Anoka County Community Action Program. Her needs were basic: She didn't understand some terms bankers were using. She didn't know how the foreclosure process worked. She needed to know her options.

"I know how fast those banks work and I didn't know how much time I had, so i was very worried," she said. "I have four kids and am a single parent and wasn't sure where we'd go and where we'd live. I know that we needed to keep a roof over our head; three of my kids had never lived anywhere else."

The counselor helped her negotiate a mortgage modification that took nine months to approve. Her lender agreed to extend the term of her mortgage, which she's been paying on for 14 years, to 30 and that meant a $230 reduction in her monthly payment.

Dan Bartholomay, Minnesota Housing commissioner, said that helping homeowners avoid foreclosure is important not just to the families who are struggling, but it has implications for the broader community and that's why Minnesota Housing was willing to tap into its funds to keep the doors open.

"Stable housing for families and children is critical to their success and development," he said. The agency, funded in part through revenue generated by its mortgage program, has been a longtime funder of the Home Ownership Center.

Gugin said that it costs on average $400 per household for foreclosure counseling, but the average foreclosure costs $77,000, including a variety of other costs such as losses to the lender and reduced property taxes that come about when the value of adjacent properties decline.

Despite the $1 million award, the foreclosure counseling network isn't out of the woods yet. The Minnesota Housing money will sustain the providers through the end of the year, but it needs $5.5 million to make it through the end of 2011. It's still awaiting word on $1.5 million that's up for approval in the federal budget. For the past three years Minnesota Housing has received federal funding from a program called the National Foreclosure Mitigation Counseling Program, but the statewide network used up the last of that money at the beginning of November.

If the latest request is approved, it won't be available until April 1. That's why Minnesota Housing included the $500,000 matching grant, which it hopes will generate other sources of revenue from both public and private entities. Gugin is cautiously optimistic about the prospects for additional funding.

"We have identified sources," Gugin said. "I hope they will be committed soon."

Jim Buchta • 612-673-7376