New York Attorney General Eric Schneiderman filed a major lawsuit today against three major too-big-to-fail banks, charging them with rampant foreclosure fraud in the wake of the housing crisis. It’s a crucially important lawsuit in its own right, but also raises major questions about the nature of the supposedly looming federal and state settlement with these same banks.

Schneiderman is acting here as New York attorney general—not as co-chair of the new federal task force on the financial crisis. That effort aims to uncover wrongdoing before the crash—or, “the stuff that blew up the economy,” as he put it last week.

This is different. Schneiderman, on behalf of New York State, is accusing Bank of America, JPMorgan Chase, and Wells Fargo of serious and wide-ranging abuses with foreclosures—of improperly foreclosing on homes they didn’t have the correct ownership of or paperwork for. Specifically, Schneiderman is targeting the Mortgage Electronic Registry System (MERS), which he also names in the lawsuit. MERS is a private, national database of foreclosures created by the banks and used widely for taking people’s homes—but since it wasn’t public and run by the financial institutions that stood to gain from rapid foreclosures, there were (shockingly!) a lot of errors and improper filings.

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

In that announcement, he echoed his recent theme that banks should no longer be too big to jail. “Our action demonstrates that there is one set of rules for all—no matter how big or powerful the institution may be—and that those rules will be enforced vigorously,” he said. “Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.”

Progressive groups were quick to praise Schneiderman’s suit. “There can be no resolution of our nation’s ongoing mortgage crisis without aggressive action to address MERS abuses and the executive actions that lay behind them. The American people deserve justice, and they deserve to know more about the abuses that created a financial disaster for millions of people while unjustly enriching a few,” said Richard Eskow of the Campaign for America’s Future.

The suit further muddies an emerging picture of the mortgage settlement with the banks over foreclosure fraud abuses.

The settlement is expected to ask the banks for $25 billion for a release of many robosigning and foreclosure fraud abuses.

Recent details leaked to the press have indicated that MERS claims would be exempted from the settlement, and Schneiderman’s suit would seem to confirm that—or that he wouldn’t be a party to any settlement that didn’t release MERS claims, since that would torpedo today’s lawsuit.

But as David Dayen at Firedoglake asks—if this is all true, then what exactly are the banks paying for in a settlement? In other words, if the settlement allows the big banks to be prosecuted for all pre-crash behavior, but then also all this post-crash MERS trickery, then why are they agreeing to a settlement at all? Something doesn’t quite add up.

I have no particular insight into this apparent contradiction—like most folks, I find it hard to figure. But we’ll certainly stay on top of it.