[Update 1: Adds New York AG statement]

Iowa Attorney General Tom Miller, the lead negotiator in the robo-signing settlement talks with major mortgage servicers, removed New York AG Eric Schneiderman from the executive committee Tuesday for undermining its objectives.

In July 2007, Miller and 11 other states formed a working group to investigate mortgage servicing issues. AGs from Arizona, California, Colorado, Connecticut, Florida, Illinois, Iowa, North Carolia, Ohio, Texas, Washington and New York joined the committee, and the other state AGs provided support in the probe.

Even though New York dropped out of this group, Miller allowed it to become a member of a newly formed executive committee formed in October to investigate improperly signed affidavits and other foreclosure documents.

Until June, Schneiderman's office participated in every committee call with the top-five servicers: Bank of America (BAC: 7.22 -1.10%), JPMorgan Chase (JPM: 37.27 -0.59%), Wells Fargo (WFC: 29.36 +1.07%), Citigroup (C: 30.43 +0.16%) and Ally Financial (GJM: 22.43 -0.62%).

But in June, the group decided to form a smaller negotiations committee in seeking a settlement. Schneiderman was offered a role, but according to Miller, he declined and indicated he would pursue a different direction.

"Since that time, New York has actively worked to undermine the very same multistate group with which it had been working very closely over the previous nine months," Miller's office said in a statement.

Schneiderman wedged himself into larger securitization talks between the banks and investors. He stepped into a deal between BofA and Bank of New York Mellon (BK: 20.09 +0.45%) and issued subpoenas to BofA executives over securities disclosures. He also launched probes into Deutsche Bank (DB: 44.10 +1.61%) and BNY Mellon over to their roles as trustees.

Since the first settlement proposals came out earlier in the year, several AGs voiced concern. Some, including the new Florida AG Pam Bondi, whose own inherited investigation into Lender Processing Services (LPS: 16.75 +1.21%) has come under public scrutiny, said proposals that include mandatory modifications or principal writedowns would only incite more strategic default.

Others including Massachusetts AG Martha Coakley said she would not support any proposal that releases bank liability to the Mortgage Electronic Registrations Systems. She launched a side investigation into MERS in July.

In a statement sent late Tuesday, Schneiderman's office said he will continue to work with the AGs from Delaware, Nevada, Massachusetts and other counterparts to provide relief to homeowners and get the economy moving again. In the statement, Schneiderman's office eluded to the where the rift between he and the committee occurred. He alleged the committee was moving too fast with the negotiations and could have been leaving some bank liability in their wake.

"Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable," according to Schneiderman's statement. "While it is Attorney General Miller's prerogative to remove us from the Executive Committee we will continue to be an active voice on these issues as a part of the 50-state coalition and in other forums."

Miller continues working with the other AGs. His action Tuesday signals the rift between him and Scheiderman was beyond repair. Schneiderman can still sign on to any arranged settlement but is no longer participating in the negotiations.

"While we certainly respect the right of any state to choose to no longer participate in a multistate and to pursue another path, working to actively undermine a multistate while still a member of the executive committee simply doesn't make sense, is unprecedented and is unacceptable," Miller's office said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior