NEW YORK (

TheStreet

) -- New York Attorney General Eric Schneiderman might be holding all the cards in a highly anticipated foreclosure settlement between the 50 states and the big banks.

The deadline for the states to agree on the deal has been extended once again to Thursday from Monday, and it looks like negotiations could still fall through. States including California, Florida, Nevada, Arizona and New York are yet to sign on to the deal and banks are reportedly balking at a recent lawsuit by the New York AG's office, according to recent press reports.

Last Friday, Schneiderman sued

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

Wells Fargo

(WFC) - Get Report

over their use of Mortgage Electronic Registration System or MERS, an electronic mortgage database, saying it resulted in deceptive and illegal practices, including false documents used in foreclosure proceedings.

The three banks, along with

Citigroup

(C) - Get Report

and

Ally Financial

- are at the center of the year-long negotiations with the states over their allegedly deceptive foreclosure practices, including robo-signing.

On Tuesday, Schneiderman said he would hold a conference at 6 p.m. regarding the foreclosure settlement only to cancel at the last minute without any explanation. Speculation is rampant as to what caused the sudden change of heart.

Reports suggest that the New York AG might be willing to sign the settlement if it means he can proceed with his MERS lawsuit. That might be a deal-breaker for banks, however, who have been seeking immunity from future mortgage liability claims from states and believe that claims related to MERS must be included in the mortgage settlement.

Through most of the year-long negotiations, it was clear that Schneiderman would not sign on to any deal if it interferes with his ability to go after banks independently. That has been a concern for California AG Kamala Harris too.

Analysts have, however, been less concerned about New York's involvement in the deal than they have about California.

"Even without New York, we believe that a national settlement will still be a positive for New York," KBW analyst Bose George argued in a report.

But California's participation in the settlement has been seen as crucial, absent which, banks could see significant litigation from the state that has been severely affected by the housing bust.

"A deal without Nevada or California would water down the settlement," KBW analyst Fred Cannon said in an interview last week.

Yet it looks like Schneiderman and not Harris might be key to a deal taking place at all.

According to a Financial Times report, the Obama administration is keen on seeing a broad settlement done and is courting various factions including consumer advocacy groups to get them on board with the deal.

If Schneiderman is indeed participating in the deal, it looks even less likely that banks will get any sort of immunity beyond the narrowest terms. The AG is leading a new mortgage fraud investigation task force that looks to hold big banks accountable for a range of issues including the securitization process.

JPMorgan Chase CEO Jamie Dimon has already said that he believes that the fraud unit would likely scuttle the foreclosure deal.

That begs the question as to whether banks will sign on to the deal at all if Schneiderman is involved, irrespective of whether California AG Harris signs on to the deal.

"I just don't see a reason for the banks to sign on the dotted line," said FBR Capital Markets analyst Paul Miller in an interview last week, arguing that banks have little reason to participate in a settlement that gives more power to the states and no immunity from future mortgage claims.

Still think a mortgage settlement will happen on Thursday?

--

Written by Shanthi Bharatwaj in New York.

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