By a one-vote margin, the state Senate gave final approval Saturday to a bill that would defer foreclosures on homes bought with subprime mortgages. But the measure could face a veto from Gov. Tim Pawlenty.

Many Democrats supported the legislation as a lifeline to 12,000 beleaguered homeowners and a way to limit the damage to communities from the foreclosure crisis.

But mostly Republican opponents said the bill would increase the costs of mortgages for many more Minnesotans. Opponents also argued that it is an unconstitutional government interference in the contracts between homeowners and lenders.

"We're going to dry up credit in this state," said Rep. John Berns, R-Wayzata, during House debate Friday night.

However, Rep. Jim Davnie, DFL-Minneapolis, a sponsor of the proposal, said the bill is in line with actions taken by the Legislature during previous foreclosure crises.

"These are difficult times for many across our state," he said, adding the measure allows borrowers to "renegotiate their mortgages with their lenders, stabilize their families, their schools, their communities."

Proponents say that a 1933 U.S. Supreme Court decision during the Great Depression gave constitutional approval to emergency laws limiting the remedies available under contracts.

The House approved the bill 81-53, nine votes short of the two-thirds margin needed to override a veto. The Senate vote was 34-33.

The measure would allow homeowners who hold a subprime mortgage to reduce payments by as much as 35 percent. Homeowners would have to contact a foreclosure-prevention counselor, agree to use their services and make partial monthly payments during the deferment period, which would last up to a year.