New York Attorney General Eric Schneiderman Friday hit several major banks, including JPMorgan Chase and Bank of America, with a lawsuit alleging that they formed an online mortgage registry service to engage in a "wide range of deceptive and fraudulent" foreclosure practices.

The lawsuit comes days before a nationwide settlement over improper foreclosure practices between federal officials, state attorneys general and major banks is slated to be officially reached.

The lawsuit targets banks and the financial industry-created service formed in 1995 is known as MERS, the Mortgage Electronic Registration Systems. Its parent company, MERSCorp, touts the service as an efficient way to privately track the ownership of mortgages. The company also acts as a "mortgagee" of a loan in public records, allowing MERS to initiate foreclosures.

Critics of MERS say it allows its members, major banks and mortgage servicers, to hide the true owner of the mortgage from local clerks, avoid recording fees for loan transfers and "robo-sign" court documents -- all accusations Schneiderman makes in his lawsuit.

In New York, MERS filed more than 13,000 foreclosure proceedings, but Schneiderman alleges that in many cases, it had no legal standing to do so.

"The MERS system effectively eliminated homeowners' and the public's ability to track the purchase and sale of properties through the traditional public records system," Schneiderman's lawsuit, filed in New York State court, said.

In addition to Bank of America and JPMorgan, Schneiderman's suit names MERS, Wells Fargo, and EMC Mortgage, and related subsidiaries.

"The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages," said Schneiderman, a Democrat, 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."

Janis L. Smith, a spokeswoman MERS' parent corporation, said the company complies with all mortgage regulations and local recording statutes.

"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," Smith said in a statement.

Wells Fargo spokeswoman Mary Eshet said the company is reviewing the suit. Spokesmen from JPMorgan Chase and Bank of America declined to comment.

Lawsuit Preceeds Foreclosure Settlement

Schneiderman's suit follows a high-profile appointment from President Barack Obama to co-chair a U.S. Department of Justice unit to probe the misconduct and illegal behavior in the run up to the mortgage crisis that tanked the U.S. economy in 2008. Obama's decision to tap Schneiderman brought into the fold the administration's chief critic of the nationwide settlement over robo-signing and other improper foreclosure practices.

The first-term attorney general and several others had objected to a potential $25 billion settlement that could have given major banks immunity from lawsuits over other parts of the financial collapse, like the pooling and securitizing of subprime mortgages.

While a settlement has yet to be finalized, Schneiderman said last week his main objections to the immunity provisions had been addressed by limiting state attorneys general claims against banks to robo-signing cases.

It is unclear how Friday's lawsuit effects the nationwide settlement that includes immunity from the same claims Schneiderman is now pursuing. A spokesperson for the attorney general could not be immediately reached for comment.

Meanwhile, Schneiderman is not the only state attorney general to go after MERS and major banks that use the system before a foreclosure settlement could be officially reached. Massachusetts Attorney General Martha Coakley, a fellow Democrat and critic of the nationwide settlement, filed a suit similar to Schneiderman's in December.

MERS is a magnet for lawsuits challenging its business practices from state attorneys general, county registrars and clerks who maintain property records and homeowners who are facing foreclosure. MERS' Web site often touts favorable court decisions affirming their business methods.