Forced place insurance can be a potential problem for homeowners who have insurance but haven't properly informed their mortgage lenders.

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Understanding what forced place insurance is

Years ago, Clark owned a condo on which he had a condo insurance policy that cost $180. But to his surprise, he got notice from the bank that held his mortgage saying they needed proof that he had insurance.

"So I faxed my policy and some paperwork from the condo association as a supporting document over to the insurance office at the bank," the consumer champ says. "The next thing I know, I got a bill from the bank for a $7,800 insurance policy!

That's the idea behind forced place insurance, and it's a money grab by the banks. The banks will use a subsidiary to write a homeowners insurance policy at 10% to 20% the market cost when you already have your own policy in place. 

Clark calls it "a reverse form of bank robbery," and it's so profitable to the banks that they just throw your paperwork in the circular file when you send it in to prove that you have coverage.

In Clark's case, he had to fax the paperwork again and call several more times all to no avail. Each time he was told that his responses were never received! So then he sent his paperwork for the third time, this time by certified mail. Again, nothing happened.

Finally, Clark had to file a complaint with, which is the Office of the Comptroller of the Currency, because this was back in the days before the Consumer Financial Protection Bureau existed. Only then did the bank back down and send him a letter saying now that he provided proof they would rescind their premium notice!

"The ironic thing was I got a letter from the OCC saying that even though I failed to do my part, they would bring the bank to heel for me as a one-time courtesy," Clark remembers. "Boy, did that burn me up."

Here's the takeaway: You have to be the one to document everything you do when it comes to getting homeowners insurance. And don't put those forced place notices on ignore either!

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