On October 1, Sharri Olsen drove into her driveway in Scarborough and saw a nicely dressed woman planting a sign in her front yard. Olsen got out of her car and asked if she could help her.

"She told me my house was newly acquired," said Olsen. "I said, What? She said it had been sold at auction September 23 and the new owner was going to get it in 30 days. I didn't even know it had been foreclosed!"

The Olsens had been negotiating a loan modification with their lender, American Home Mortgage (AHM), since 2008. It had been a dizzying experience for Olsen, but she and her husband had been persistent and had been assured a week earlier by the loan servicing company that handled AHM mortgages that the loan modification was imminent.

"I talked to them in June, July, August," said Olsen. "They said the modification was going through."

She thought she had learned her lesson over the past two years; she kept a paper trail of every interaction with the servicer because they were notorious for losing paperwork.

So Olsen couldn't believe what the woman standing on her lawn said next.

"It had been foreclosed May 12," said Olsen.

The woman, who worked for American Home Mortgage, told Olsen that she should fight the foreclosure. This wasn't the first person she had surprised with the news they no longer owned their home.

The question was how? How could she fight it?

Foreclosures Not Yet Peaked in Midcoast

Maine has not suffered in the foreclosure crisis as much as other states, and the midcoast even less so, but foreclosure rates are still high.

"I don't think we've reached the peak of foreclosures, yet," said Superintendent of the Maine Bureau of Consumer Credit Protection William Lund, who oversees the bureau's Foreclosure Prevention Program.

"I hope after the first quarter of 2011, it will start going down," he said.

According to the foreclosure filing data from the Maine State Courts, foreclosures rose 135 percent in Knox County over the past five years, 185 percent in Waldo County and 192 percent in Lincoln County.

That means 453 families lost their homes in Knox, Waldo and Lincoln counties last year - compare that to under 150 homes a year going into foreclosure five years ago.

Bad Choices, Bad Brokers, Bad Luck

Reasons for going into foreclosure vary, according to Lund. A combination of bad choices, bad brokers and bad luck: that's part of the story. Some foreclosures are a result of unemployment, illness, and death of a spouse. There were home buyers who couldn't afford the houses they bought and there was predatory lending by shady mortgage brokers who fiddled with the income of the applicant and accepted overheated property appraisals just to make a sale of an adjustable-rate mortgage - putting the homeowner in a mortgage that they couldn't afford down the road. And there were shaky sub-prime loans at the foundation.

Sharri Olsen didn't think she fit into any of those categories. She and her husband had good credit from paying bills on time and a good income - $80,000 a year from his job with UPS and around $20,000 a year for her part-time work. They could afford a mortgage and went shopping for one and ended up with a friend who was a mortgage broker.

The Mortgage Broker Who Disappeared

"It seemed like a good adjustable mortgage," said Olsen. The rate was fixed for three years, then supposed to adjust every two years. In 2005, the Olsens bought a three-bedroom, two-and-a-half-bath Colonial in Scarborough that had been built in 2002 and started paying their $1,685-a-month mortgage on their new home.

"We pay our bills," said Olsen. "I drive an older vehicle. We're not over-the-top."

But when the rate started to adjust, it didn't stop. "It adjusted more than the broker said it would," she said. "It adjusted every nine months, then six months, then three months."

As the mortgage payment climbed to $3,700 a month, they tried to contact their mortgage broker, but their old friend had disappeared. They called American Home Mortgage, but the loan servicing was being handled by a call center in India.

The Olsens weren't under water, but the payments were a strain and they wanted to modify the mortgage before they were in trouble. "I could never get the same person on the phone," said Olsen. They had names like Sam and Jim, but their accents were so thick that Olsen barely understood them. "Most of the time in the past two years I couldn't get past customer service."

The Loan Modification Merry-Go-Round

American Home Mortgage agreed to consider modifying the Olsens' loan so the monthly payment was manageable. The voice on the other end of the phone said that they had to stop paying their mortgage to qualify.

They did.

But they didn't spend it. They put the mortgage payment money in their savings account.

"The negotiations started. We sent (the servicer for AHM) paperwork, bank statements, paycheck stubs, financial statements," said Olsen. "They said they hadn't received it, or they couldn't read part of it, or they needed updated versions."

What the Olsens didn't know and the federal government didn't realize when they started HAMP, the Home Affordable Modification Program, is that lenders like American Home Mortgage may want to modify a loan to prevent foreclosure, but their subcontracted loan servicers may not. The servicing companies tend to make more money when a foreclosure goes through, according to a December 14, 2010, Congressional oversight report on loan modifications.

A few months after the Olsen mortgage had gone into forbearance, pending the outcome of the loan modification application, someone from the sheriff's office was knocking on the Olsens' front door.

"They served us with foreclosure papers," said Olsen. "We had 20 days to pay. I called American Home Mortgage (servicers) and they said: 'Don't worry, don't worry about it. Don't go to court, we'll take care of it.'" Then their loan modification was turned down because they made too much money to qualify. The servicers told the Olsens they owed $8,000 straight up if they wanted to keep their home.

"Fortunately, we had it. We were able to pay it," said Olsen. But their monthly mortgage rate was going up and up and up; they still needed to modify their loan. Only now, their credit rating had dropped 200 points for not paying the mortgage and a conventional refinance at a local bank wasn't an option.