(Reuters) - Massachusetts on Wednesday said it is preparing to sue big banks related to unlawful foreclosures, dealing another blow to the multi-state talks aimed at resolving those investigations on a national scale.
"I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures," Massachusetts Attorney General Martha Coakley said in a statement.
Federal and state officials met with representatives of several large U.S. banks this week with hopes of reaching a deal in the coming weeks.
Mortgage servicing units of Bank of America Corp, JPMorgan Chase & Co, Wells Fargo, Citigroup, and Ally Financial are accused of coping with an unexpected deluge of mortgage defaults beginning in 2008 by cutting corners and unlawfully rushing through foreclosure paperwork.
A settlement with all 50 states and federal authorities could help the banks move beyond the legal fallout that has dogged them since the peak of the financial crisis.
But the long-running talks -- which will hit the one-year mark later this month -- have been plagued from the start with criticism from states concerned about the extent of the legal immunity the banks have sought.
Last Friday, California pulled itself from the negotiating team and said the deal under discussion would not provide enough relief to the state's homeowners.
Though Massachusetts is not part of the team negotiating the larger settlement, Coakley has in the past expressed reservations about the direction of the talks.
In July, her office said it was investigating unlawful foreclosures, and examining whether creditors failed to establish whether they had the right to foreclose on a home before doing so, or whether they filed false or misleading documents in connection with a foreclosure.
Her office was examining whether the electronic registry used to track the ownership of mortgages during the height of the housing boom, MERS, conformed to state law.
On Wednesday, Coakley said her office is "aggressively proceeding" with those efforts and is prepared to file lawsuits soon.
"We have begun preparing for litigation," Coakley said.
People close to the multi-state talks have told Reuters a settlement is possible without all states signing on.
Even if a state isn't a signatory to a final deal, its residents could benefit.
The bulk of any settlement -- some 70 to 80 percent -- is expected to settle federal claims, and that pot is expected to be used by banks to provide relief to struggling homeowners across the country.
(Reporting by Aruna Viswanatha; Editing by Gary Hill)