The Massachusetts attorney general has filed a lawsuit against five large U.S. banks accusing them of deceptive foreclosure practices, a signal of ebbing confidence that a multi-state agreement can be worked out.

Attorney General Martha Coakley said on Thursday she filed the lawsuit partly because it has been taking too long to hammer out a nationwide settlement.

For more than a year, state and federal officials have been negotiating a deal in which banks would pay billions of dollars in fines - to go toward housing relief - in exchange for legal protection against future suits.

The Massachusetts lawsuit, filed in state court in Boston, accuses Bank of America Corp, JPMorgan Chase & Co Inc, Citigroup Inc, Wells Fargo & Co and GMAC of deceptive foreclosure practices, such as using robo-signers and false documents.

Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law, Coakley said in a statement.

The attorney general in Iowa, Tom Miller, who is leading the negotiations for the states, said in a statement they hope to reach a settlement soon. He also said Coakley had indicated she is still open to joining the settlement.

We're optimistic that we'll settle on terms that will be in the interests of Massachusetts, Miller said.

However, analysts said Coakley's lawsuit is a bad sign for banks, which hope a deal with states and federal authorities could help the industry move beyond the legal fallout that has dogged it since the peak of the financial crisis.

I can't say anything is dead, but it sure looks like this is a negative. The banks are going to have these suits out there for years. said Paul Miller, a bank analyst with FBR Capital Markets.

The mortgage servicing units of the five banks are accused of taking shortcuts as a way to deal with a deluge of foreclosures in the wake of the 2008 credit crisis.

State attorneys general, the Justice Department, and other federal officials have been talking with the banks for more than a year.

The discussions have been bogged down by states concerned the deal was either too lenient or provided the wrong kinds of relief, and by the banks who sought release from mortgage-related claims beyond the original conduct at issue.

GOING IT ALONE?

The Massachusetts complaint accuses the banks of using fraudulent documents when processing foreclosures; of foreclosing on properties without holding the actual mortgage; and of failing to uphold promises to modify loans for the state's homeowners.

It also names the banks' private mortgage registry, MERS, as a defendant, accusing it of dodging fees and corrupting the state's land recording system.

On Thursday, Coakley was firm that she would not sign a mortgage settlement that included broad liability release regarding MERS and other issues.

A person familiar with the talks said Massachusetts has sought to protect its ability to pursue certain claims against the banks for their use of MERS. Those liability issues are still being hashed out in negotiations, the person said.

The banks targeted in the suit said Coakley's move imperils chances for broader relief.

Bank of America said in a statement that a collaborative resolution, rather than continued litigation, would more quickly heal the housing market and help drive an economic recovery.

Chase said in a statement that it is disappointed Massachusetts filed a lawsuit when negotiations are ongoing on a broader settlement that it said could bring immediate relief to borrowers.

GMAC said it was unhappy that Massachusetts elected not to continue a more constructive path that could help borrowers in the state, but rather has chosen to use the court process.

Wells Fargo disagreed with Coakley that it has not kept a promise to modify loans.

Citi said it had not yet reviewed the lawsuit, but the bank believes it has operated appropriately and in compliance with existing laws.

Coakley, who took office in 2007, has been aggressive in moving against Wall Street firms and U.S. banks. Her office said it has secured more than $600 million in relief for investors and borrowers, while keeping more than 24,000 people in their homes.

(Additional reporting by Scott Malone, Svea Herbst, Rick Rothacker and Joe Rauch; editing by Andre Grenon)

Mortgage Wells fargo Lawsuit