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Courtesy of the Attorney General's office.

With WNYC's Ilya Marritz

New York Attorney General Eric Schneiderman announced a lawsuit Friday against some of the nation’s largest banks, accusing them of initiating fraudulent foreclosures throughout the state.

The suit revolves around the electronic, national mortgage database created by the banks known as MERS.  The Attorney General said the legal paperwork filed through the system to foreclose on homeowners had “numerous defects” that included “misrepresentations of fact.”

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said in a statement. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”

The Attorney General’s lawsuit accused Bank of America, J.P. Morgan Chase, Wells Fargo and others banks of using MERS to file foreclosure documents that contained false and misleading information.  The suit also said the MERS system prevented homeowners from tracking ownership of their properties.

The result was inappropriate foreclosures on properties for which individual banks did not hold the promissory note, and thus had no authority over, according to the lawsuit.

Many of the foreclosure proceedings allegedly resulted from “robosigning” agents.

MERS has filed about 13,000 foreclosure actions in New York, according to the Attorney General’s office.

JP Morgan Chase and Bank of America, two of the banks charged in the civil lawsuit, declined comment.

MERSCORP which operates the database said in an statement, “Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders. We refute the attorney general’s claims and will defend the case vigorously in court.”

Schneiderman filed the suit as there are increasing reports of a possible multi-state settlement between mortgage lenders and state Attorneys General over foreclosure practices.

“On the eve of that national settlement close to being announced, this is a little bit of a surprise that New York is going after it on its own,” Cecala said.

Guy Cecala, publisher of Inside Mortgage Finance, estimated the total payout from this new lawsuit could reach more than $2 billion, close to its estimated portion of the multi-state settlement.

The Attorneys General of Delaware and Massachusetts filed suits against MERSCORP last year over foreclosure practices.

According to Jaret Seiberg, a senior policy analyst with the Guggenheim Securities,  a lasting consequence of this latest lawsuit could be years of legal for some of the nation’s largest financial institutions.

In a note to clients, Seiberg said “investors should view mortgage litigation risk for the banks much like they viewed asbestos litigation risk for the insurers.”

Seiberg also noted the lawsuits put the major financial institutions in a weaker political position by reminding the public of their role in the mortgage meltdown.

Schneiderman has put investigations of the financial industry and its role in the mortgage crisis as a central issue for his office since elected in 2010 to the to the state’s top law enforcement job.

This lawsuit comes a week after President Obama appointed Schneiderman as a co-chair of a national housing crisis task force. While this lawsuit is separate from that, it’s just one of a number of state-initiated actions against financial institutions for alleged improprieties.

In an interview on WNYC's The Brian Lehrer Show earlier in the week, the Attorney General gave hints that something on the scale of this lawsuit would be coming.

"You will see, the American people will see, action from this working group very quickly," he said. "A bunch of subpoenas have already gone out, cases will be filed. This is not something people are going to have to sit around for six months before they see results."

Contributed reporting by Stephen Reader