California Attorney General Kamala D. Harris pulled out Friday of state and US efforts to negotiate an end to the government's investigation of alleged foreclosure abuses, calling the proposed settlement "inadequate for California homeowners."

The decision by Harris, who took office in January, could deliver a serious blow to efforts by President Barack Obama's administration and other state attorneys general to forge a $25 billion settlement with the nation's largest banks over robo-signing and other questionable foreclosure practices.

Some state and federal officials had been seeking as much as $25 billion in penalties that would be used, in part, to write down loan balances for underwater borrowers. But it will be difficult to come close to that amount without the participation of California. California has more underwater borrowers than any other state and has more borrowers that are behind on their mortgages or in foreclosure than any other state but Florida.

The move by Harris comes after eleven months of often frustrating negotiations between big banks such as Bank of America Corp. and J.P. Morgan Chase.

One key point of contention has been the extent to which banks should be released from additional legal claims in exchange for signing on to an agreement. In recent months, attorneys general in New York, Massachusetts, Delaware, Nevada, Minnesota and Kentucky have also expressed concerns about a potential settlement.

In a letter sent Friday to Associate US Attorney General Thomas Perrelli and Iowa Attorney General Tom Miller, who have been leading the negotiations, Harris said her decision to break off from the group was driven by two key concerns. "It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated," she said.
She added that "the relief contemplated would allow too few California homeowners to stay in their homes."

Foreclosures in California and other states had plummeted in the wake of the robo-signing scandal, but recently began to increase as banks worked through their paperwork problems. 

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