Tenant scammers are taking rental fraud to new heights, moving in and out of fake identities as easily as Ethan Hunt swaps out masks. Mission: Impossible. However, in the rental scenario, the only thing that is about to self-destruct is the landlord’s bank account.
Gone are the days of forged pay stubs and embellished credit histories. Now a whole web of fraudulent information, backed by tech-savvy perpetrators, is forcing landlords to adapt by using improved screening techniques. These techniques may make some innocent tenants wonder if they should apply to join the CIA instead of moving into a new apartment.
Fraud by first and third parties
Business insider recently reported that the rental industry is distinguishing between first-party fraud – where applicants use their real names but submit forged income, banking or employment documents – and third-party fraud, where scammers impersonate or steal a full identity to secure a rental contract.
The publication highlighted the case of Jared Decker, a local Tampa businessman, who discovered thousands of dollars missing from his bank account. A fraudster used his identity to charge $10,000 in rental payments for apartments that Decker knew nothing about. The perpetrator had moved into the apartment before Decker found out what was going on.
A costly eviction and legal proceedings followed, increasing costs even further. Ultimately, the actual landlords, a mom-and-pop operation, were liable for the majority of the costs.
Smaller landlords could be targets
Smaller landlords that do not have the advanced screening techniques used by larger, corporate landlords are particularly vulnerable. Once a tenant has moved in, removing them costs time and money due to the formal eviction process.
Mom-and-pop companies own more than a third of all U.S. rental properties, and they are particularly vulnerable as the boom in artificial intelligence makes document manipulation much more sophisticated and harder to detect. However, fraudsters do not discriminate in their targets, with large business management companies and landlords equally likely to receive falsified information.
“At Habitat, the most pressing fraud issue is the increase in fraudulent rental applications involving stolen identities,” said Wendy Deetjen, VP of the Market-Rate Portfolio group at The Habitat Company, a Chicago-based management and development firm specializing in mixed-use and multifamily properties. The Apartment Association of Greater Los Angeles.
“Applicants are using sophisticated tactics – such as AI-generated documents and falsified employment records – to secure units under false pretenses,” Deetjen added.
Nearly 95% of landlords have experienced rental fraud
According to one questionnaire from the National Multifamily Housing Council (NMHC), 93.3% of respondents reported experiencing varying degrees of fraudulent activity in the past year. The most common (84.3%) was based on falsified documents such as pay slips, employment references and income verification.
Fraud causes landlords to get into serious financial trouble by renting to tenants who have no intention of paying the rent.
Remote lease tenants are a big red flag
According to Louie Colella, vice president of leasing and operations at Chicago-based developer CRG, a red flag for would-be landlords is that tenants are renting apartments they don’t see. He told the Apartment Association of Greater Los Angeles:
“One of the biggest fraud issues we’ve seen at CRG occurs during the application process, especially in cities like Chicago and with tenants who rent without seeing the unit in person. During the pandemic, when in-person tours were difficult or impossible, we rolled out virtual tours and online leasing tools to keep things moving and make it easier for renters. That convenience was great, but it also opened the door to fraud.”
Where rental fraud is rife
Greystar, one of the largest home management companies in the US, overseeing 960,000 homes multi-family units and 44,000 in Atlanta alone, told Business insider that rental fraud is rampant in certain cities. In Atlanta, they claim to flag about half of their rental applications in the city’s downtown, downtown and Buckhead areas. In Durham-Chapel Hill, North Carolina; Salt Lake City; Portland; Charleston, South Carolina; and Boston, they identified approximately 14% to 18.5% of applications as fraudulent.
“We have certainly seen lease fraud attempts increase in both size and sophistication in recent years,” said Jamie Teabo, senior managing director at Greystar. Business insider.
Rental management software provider RealPage found that 75% of nearly 400 property managers surveyed in five major cities saw an increase in fraud. Business insider reported, noting that 25% of all evictions in the past three years were due to fraud and, in a related story, the inability to pay rent.
Incentives for landlords make new construction vulnerable
A recent boom in new apartment construction has opened the floodgates even further to fraud, especially with incentives like a month or two of free rent, making the rental period ripe for abuse. The increasingly digital and anonymous nature of this process makes it difficult to separate the scammers from legitimate tenants.
Combating fraud
While rental fraud has been painful for landlords, it has been hugely profitable for the companies hired to stop the scammers. Snappt is one: an identity and income verification software company that has received $100 million in venture capital funding by 2022 and is being used by landlords who own 2.2 million apartments in the US.
“Business has been like a rocket,” said Kyle Nelson, the company’s vice president of corporate strategy Business insider.
Final Thoughts: Practical steps for landlords to screen and detect fraud
Obey tenant screening laws
While it is understandable that landlords will want to take precautions when screening tenants, there is a danger that excessive caution could be perceived as overly intrusive by some tenants. They may have a point, because there are tenant screening laws that every landlord or property management company must adhere to, and these vary from state to state.
If you exceed your limits, a smart tenant can file a complaint. There are also some gray areas where common sense must prevail. Ask for personal photos to guide an application or use inaccurate credit score calculation methods could land a landlord in hot water.
Due diligence is essential
Amid sophisticated forgeries of documents like pay stubs and employment letters, following up on public business addresses (not personal phone numbers) should be standard due diligence.
Insist on personal viewings
The pandemic is over. A landlord can only request personal viewings. Not only does this give the owner/manager a chance to gauge a potential tenant’s personality, but it should also give the potential tenant a chance to tour their potential future home in person – a sign that they are serious about renting from you.
Never accept rent before a lease has been signed
As tempting as it is, accepting money from a tenant before one rent is signed, a landlord can run a scam. Follow protocols and verify everything.
Outsource it to the experts
Consider outsourcing identity and income verification to third-party companies like Snappt, and background checks to services like TransUnion SmartMove and Checkr.
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