* Dozens of states meet deadline to join mortgage deal
* Many states won't comment about their participation
* Deal faces another setback after banks balk at NY suit
* California angling for more control over relief
By Aruna Viswanatha and Karen Freifeld
Feb 6 (Reuters) - A proposed mortgage settlement in the works for more than a year will move forward with more than 40 states joining the deal before a Monday deadline, Iowa Attorney General Tom Miller said in a statement.
States had been given two weeks to assess a proposed settlement, under which top U.S. banks would pay up to $25 billion in exchange for resolving civil government lawsuits about misconduct in servicing home loans and pursuing faulty foreclosures.
"The sign-on deadline for the proposed joint state-federal mortgage servicing settlement passed Monday with more than 40 states signing on. This enables us to move forward into the very final stages of remaining work," Miller said.
"Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement," Miller added.
Officials had hoped to announce a final settlement as early as this week. It is unclear if the Obama administration and a group of states will move ahead with a smaller settlement if holdouts continue to drag their feet.
Some states and activist groups have been concerned the proposed deal would release banks from too many claims and does not provide enough relief to homeowners.
California Attorney General Kamala Harris, whose participation would grow the size of the settlement by some $6 billion to $8 billion, was not expected to issue any statement on Monday, a person familiar with the matter said.
On Friday, Harris told Reuters she was "less concerned with the timeline than the details" of the settlement.
A New York lawsuit filed on Friday against JPMorgan Chase , Bank of America and Wells Fargo has also become a stumbling block, according to a person briefed on the negotiations.
This person said on Monday that the banks are balking at a lawsuit from New York Attorney General Eric Schneiderman that accuses them of fraud in their use of the electronic mortgage registry MERS.
The lawsuit is based on claims that were expected to be resolved through the settlement.
The multi-state settlement talks are focusing on the three banks named in Schneiderman's suit, as well as Citigroup and Ally Financial.
Schneiderman has been a key opponent of the proposed settlement.
However, Schneiderman said Jan. 27 that the liability releases in the draft settlement had become narrow enough so that a full investigation by a new mortgage crisis unit that he will help lead could move forward.
Jennifer Givner, press secretary for Schneiderman, declined to comment on Monday.
Other states continued to weigh the details until the last minute.
In a statement, Nevada Attorney General Catherine Masto said her office is continuing to review the settlement and is advocating for improvements to address Nevada-specific needs.
Masto sued Bank of America last year and accused it of violating an earlier agreement meant to resolve mortgage-related claims from its Countrywide unit, and lawyers for the office are in discussions about what impact the settlement will have on the lawsuit, people familiar with the matter said.
A spokeswoman for Attorney General Tom Horne of Arizona said on Monday afternoon that Horne was still evaluating the settlement and "may decide by the end of the day."
Even Florida Attorney General Pam Bondi who has been on the committee negotiating the deal has not publicly committed to the settlement. A spokeswoman said in a statement that Bondi "remains involved in the settlement discussions in order to reach the best resolution for Floridians and all Americans."
And a spokesman for the attorney general in Massachusetts, Martha Coakley, who has been a critic of the proposed settlement, said her office would not have a comment on Monday.
Coakley separately sued the same banks in December and accused them of deceptive foreclosure practices, but she has not ruled out joining the multi-state settlement.
Her office has been in discussions to carve out certain foreclosure issues specific to her state, people familiar with the matter have said.
In particular, Coakley does not want the settlement to allow banks to avoid a look back at past foreclosures after Massachusetts' highest court voided two home seizures saying the banks failed to show they held the mortgages at the time they foreclosed.
California's Harris, too, has expressed state-specific concerns that the relief provided in the settlement go to those "most distressed" in her state, and has pressed for some certainty that the relief is regionally proportionate, according to people familiar with California's concerns.
The state has faced some of the worst foreclosure rates in the country. One in every 31 housing units in California received at least one foreclosure filing last year, according to RealtyTrac.
Meanwhile, U.S. Housing and Urban Development Secretary Shaun Donovan has been pushing hard in recent weeks to close and sell the deal.
He spoke to left-leaning bloggers in a conference call over the weekend to convince them of the merits of the settlement.
Representatives of several other state attorneys general either declined to comment or did not respond to requests for comment.