In a letter to other state attorneys general, Harris breaks away from a 50-state investigation, citing a proposed settlement that is inadequate for California homeowners.
Harris says she plans to continue to investigate the mortgage practices that she believes contributed to the state's growing housing crisis, and seek a proper resolution for homeowners.
She also says she plans to push forward legislation and regulations that will better protect the rights of borrowers.
Her announcement is the latest to undermine a resolution that had been in the works between the banks and attorneys general in all 50 states. Other states including New York also have expressed reservations about the deal, which would help keep people in their homes and compensate borrowers who faced improper foreclosures.
The agreement was supposed to settle claims of poor mortgage and foreclosure practices, including document fraud known as "robo-signing" - approving documents in foreclosures without actually reading them.
Without agreement from the nation's most populous state - and one of the hardest hit by foreclosures - the settlement could end up doing little to resolve the issue. Foreclosure fraud class-action lawsuits are also piling up against major banks across the country.
Harris noted that more than 2.2 million California residents are underwater, meaning they owe more on their mortgages than their homes are worth. Since the negotiations began 11 months ago, foreclosures have begun against more than 560,000 additional California homes.
Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are among the banks that have been involved in the talks.
Harris said California will go it alone in negotiating a settlement with the banks that would keep more families in their homes. She also promised to seek regulations and legislation to prevent future problems.
The Associated Press contributed to this report.