Three states conducting their own probes of residential mortgage practices are resisting broad liability releases sought by banks to settle a nationwide foreclosure investigation.

The banks, in settlement talks with state and federal officials, are seeking releases that would protect them from future legal liabilities. Massachusetts Attorney General Martha Coakley said yesterday she won’t endorse a deal that includes certain releases. New York and Delaware have raised similar concerns over terms of a possible deal.

All three states are conducting investigations tied to mortgage operations of banks. Delaware and Massachusetts officials say a settlement shouldn’t release banks from some claims, including those related to bundling mortgages into securities, while the inquiries continue.

“We’re not prepared to do a broad liability release for either securitization issues or for MERS until we’ve completed that piece of investigation,” Coakley said in a telephone interview yesterday. Mortgage Electronic Registration Systems Inc., or MERS, is a national mortgage database used by banks.

State and federal officials are negotiating a settlement with the five largest mortgage servicers, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), over their servicing and foreclosure practices. Attorneys general from all 50 states began investigating the practices last year.

Banks’ Goal

The banks want releases that go beyond servicing to include lending and securitization of loans, according to a person familiar with the matter.

Lawrence Grayson, a spokesmen for Bank of America, and Thomas Kelly of JPMorgan declined to comment about the issue last week. They didn’t respond today to e-mails seeking comment.

New York Attorney General Eric T. Schneiderman’s office said in a statement last week that he “remains concerned by any settlement agreement that would preclude state attorneys general from conducting comprehensive investigations of the mortgage crisis.”

Delaware Attorney General Beau Biden said in an interview last week that he had “strong reservations” about releasing claims other than for servicing of mortgages because he is investigating related issues, including securitization.

“We have an investigation going on,” Biden said. “It would hinder our ability to do that, so that’s why I have real reservations about anything beyond releases as it relates to servicing.”

Delaware Probe

Delaware is also investigating MERS, according to a person familiar with the matter.

MERS was created by the mortgage finance industry and tracks servicing and ownership interests in mortgage loans. Coakley said she is investigating whether MERS complies with Massachusetts law. At issue is the integrity of real-estate transfers, she said.

In proposed settlement terms sent to the banks in March, state and federal officials said “issues relating to the use and performance of MERS are reserved for further discussion.”

Eric Tabor, chief of staff for Iowa Attorney General Tom Miller, declined to comment about negotiations over MERS. Miller is leading negotiations for the states.

Scope of Liability

States besides New York, Delaware and Massachusetts have concerns about the scope of the liability releases in any settlement with mortgage servicers, Coakley said. She declined to name the states. Banks are looking for the broadest releases possible in any settlement, Coakley said, and the issue is “under intense discussion.”

Merscorp Inc., which owns MERS, will cooperate with the investigations by Massachusetts and Delaware, Janis Smith, vice president of corporate communications, said in an e-mailed statement.

“The use of MERS has been litigated in Massachusetts courts, and judges have upheld the legality of the MERS business model in the commonwealth,” Smith said.

Coakley said she disagreed with that view.

To contact the reporter on this story: David McLaughlin in New York at

[email protected].

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