For months, the state attorneys general of all 50 states have been negotiating a foreclosure abuses settlement with some of the biggest mortgage lenders. The talks have been hampered, though, by some states' wanting more legal accountability for the lenders who were guilty of robo-signing and many other foreclosure abuses. One of the chief dissenters is California.

Since it looks more and more likely that California would not agree to the overall settlement as proposed, the state attorneys general from the pro-settlement states have begun a second strategy. That is to craft a smaller settlement with the banks that would not include California. If such a settlement was agreed to, California would still be able to prosecute banks for foreclosure abuses, including abuses that have not yet come to light. The problem with not being part of the settlement, though, is that relief provided in the settlement for distressed homeowners might not be available to homeowners in California.

San Diego foreclosure attorneys have noted that the states that are pro-settlement are negotiating for a sort of "most favored nation" clause that would give them the benefit of any better deal that might later be struck with California or other states that do not take part in the new smaller settlement.

The new deal is rumored to include fines near $25 billion, but that is around 25 percent less than the attorneys general were negotiating for when the talks assumed participation by California.

Source: Thomson Reuters News & Insight "States moving on smaller U.S. mortgage probe deal" Nov. 22, 2011