The state of New York sued major US banks on Friday for fraudulently foreclosing on thousands of homeowners in the state in the wake of the nationwide housing crash.

The state is suing JPMorgan Chase, Bank of America and Wells Fargo, along with Virginia-based MERSCORP, which it called a "shell company" set up by the banks to process home loans they made but which became a dumping ground for poorly documented and mishandled mortgage records.

Attorney General Eric Schneiderman said that MERSCORP was used to run an unregulated, private national mortgage registry system, "MERS", which the banks used to speed up the processing and resale of mortgages during the housing bubble while avoiding the use of the public registry.

The private database of 30 million active loans "is plagued with inaccuracies and errors," leading to thousands of improperly filed foreclosure cases in the state which "undermined the integrity of the judicial process," according to a New York attorney general's office statement.

It was also used by the banks to conduct foreclosures even though it "lacked the legal authority to foreclose" and did not own the home loan it was foreclosing on.

"The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages," Schneiderman said in the statement.

"Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law."

The lawsuit asks the court to rule that the practices of the banks and MERS were illegal and seeks damages for homeowners and civil penalties.

MERSCORP denied the allegations and vowed to "vigorously" defend its case in court.

Company spokeswoman Janis Smith said in an email to AFP that the company and MERS "comply with laws as well as county and state recording statutes and mortgage regulations."

"Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders," she said.