Thousands of Minnesotans who don't think they're required to have flood insurance could soon get a surprising and potentially expensive letter from their mortgage company saying that they are.

The frustrating experience of some Chisago County homeowners, who were among the first to grapple with this as state flood maps are updated, strongly signals that a second opinion is warranted before homeowners shell out for a flood policy.

Despite what the letters say, their home may not require it. Consumers also should be aware that if they don't act, banks may put in place high-priced policies on which they earn a handsome commission.

A recent Star Tribune story by Jeff Meitrodt put a welcome spotlight on a burgeoning consumer-protection issue in Minnesota and across the nation -- flawed practices used by mortgage lenders to pressure homeowners to buy flood insurance and other policies. Lenders can forcibly place such policies if the homeowner refuses or doesn't take action within a 45-day window.

Not only was Meitrodt's story a cautionary tale for homeowners, it should spur greater scrutiny of lenders' flood insurance placement processes by state lawmakers. Other states are considering consumer safeguards -- such as banning lenders from getting commissions on so-called "force-placed" policies.

Minnesota may also need a legislative solution. In the meantime, the state Department of Commerce deserves credit for already delving in.

Lender-placed policies for floods and other hazards are often far more expensive than those bought independently by homeowners. Commissions may increase lenders' incentive to place these policies. According to the Insurance Information Institute, forced-place policies generated $3.1 billion in premiums in 2010.

The issue has taken on greater urgency in Minnesota, with state flood maps in flux as a federal push for updates continues. More than 20 counties, including Hennepin, will get new maps over the next few years.

Lenders are monitoring the changes -- as they should -- to make sure their financial interest is adequately protected. Inadequate flood coverage is a problem, as the recent Duluth flooding revealed.

Letters are sent out to homeowners whose property is newly determined to be in a high-risk area and required to have flood coverage. But the risk-review process triggering these letters isn't foolproof. Homeowners whose structures sit high above flood lines -- who may not be required to buy insurance -- may get one of these letters if part of their land touches or extends into a flood plain.

Those who receive these missives should check with county officials to see if the maps show that their structure is in the flood zone. Chisago County officials intervened with one lender after 20 property owners were wrongly classified, according to Meitrodt's story.

Lenders should also work to make the jargon-filled letters more consumer-friendly. Doing so would be a strategic public-relations move at a time when the industry is under growing criticism for its insurance placement practices.

The letters make it difficult to determine how to challenge an insurance requirement. They also often fail to direct homeowners to the National Flood Insurance Program's website and make it clear that homeowners will likely find the best deal there if coverage is needed.

"How hard is it to send somebody to a doggone website?" said Keith Crocker, a Penn State University business school professor. "If they were really interested in protecting their collateral, they wouldn't care where you got it from. They would care that you had it.''


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