Oct 27 (Reuters) - MERS, the electronic mortgage registry used by the banking industry, was sued by Delaware on Thursday and accused of deceptive practices that led to unlawful shortcuts in dealing with the foreclosure crisis.

New York's attorney general also took action against MERS, subpoenaing the registry this week for information about how it is used by major banks and a foreclosure law firm, a person familiar with the matter said on Thursday.

The suit and subpoena were part of a joint New York-Delaware mortgage probe, the person told Reuters.

MERS, a unit of Merscorp Inc of Reston, Virginia, operates the computerized registry that tracks changes in loan servicers, among other things.

It has faced multiple investigations for its role in thousands of problematic U.S. foreclosure cases.

State officials and federal agencies are also negotiating a settlement with the nation's top banks over their own mortgage practices.

The MERS registry used by the banking industry is "unreliable" and "frequently inaccurate," Beau Biden, the Delaware attorney general said in his state's lawsuit.

The suit seeks to stop MERS from initiating foreclosures in Delaware in the company's name and to have documents recorded with counties to correct the chain of title. It also seeks monetary penalties.

A MERS spokeswoman, Janis Smith, said there is "no merit" to Delaware's allegations. The company cooperated with the Delaware investigation and provided information it requested through a subpoena earlier this year, Smith said.

Smith declined to comment on the New York subpoena.

New York Attorney General Eric Schneiderman's subpoena to MERS requests information and documents related to Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Wells Fargo & Co and Ally Financial Inc, the person familiar with the matter said. The person was not authorized to speak publicly.

Those are the same banks negotiating with state officials and federal agencies in the separate probe.

Schneiderman's subpoena also seeks information on Amherst, New York, foreclosure law firm Steven J. Baum, which the attorney general has been probing since at least last spring.

Lauren Passalacqua, a spokeswoman for the New York attorney general's office, declined to comment.

LAWSUITS PILING UP

MERS is accused in the Delaware lawsuit of obscuring details and providing inaccurate information to borrowers, making it difficult for them to seek out the owner of their loan and modify it when facing a potential foreclosure.

The suit, filed in Delaware Chancery Court, accused the company of violating the state's Uniform Deceptive Trade Practices Act.

Other lawsuits have faced mixed success. A federal judge in Phoenix earlier this month dismissed a group of lawsuits filed by homeowners who said foreclosures based on MERS documents were invalid. Local governments have also sued the company seeking mortgage recording fees they say they are owed.

MERS is a collaboration between top mortgage servicers -- including Bank of America, CitiMortgage, and Wells Fargo -- as well as mortgage insurers, and Fannie Mae and Freddie Mac, the government-controlled finance entities that hold many of the country's mortgages.

As the housing bubble burst and mortgage servicers faced a flood of foreclosures, MERS, as the listed owner of the mortgages, often turned out to be the entity initiating foreclosure proceedings.

Law firms that handle foreclosures such as the Baum firm also have come under fire. Baum and Pillar Processing LLC, which processes foreclosures for the law firm, settled an investigation by the U.S. Attorney's office in Manhattan over its foreclosure practices on Oct. 6 and agreed to pay $2 million.

The agreement did not include a finding of unlawful practices or wrongdoing.

Schneiderman's ongoing probe of the firm included a subpoena to the firm last spring, the source said. Tailwind Capital LLC, a private equity firm, and Ares Capital Corp, which have financial ties to Pillar, also were subpoenaed, according to the person.

Schneiderman spokeswoman Passalacqua declined comment, as did spokespeople for the Baum firm, Tailwind and Ares. (Reporting by Karen Freifeld and Aruna Viswanatha; Additional reporting by Tom Hals)

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