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This blog focuses on topics such as identifying fraud, reducing evictions and lowering bad debt in the multifamily housing industry.

Understanding Fraud in the Residential Rental Market

Evictions are at an all-time high among residential rental properties. According to Snappt research, eviction rates have reached 21 percent during the pandemic[1]. Why? According to landlords, 25 percent of these evictions are due to fraud.

 

That’s a stunning statistic, but what kind of fraud are residential rental property managers grappling with? In this article, we examine the two leading types of fraud and discuss how to protect against each.

 

Leading Kinds of Rental Fraud

The two most common types of residential rental fraud are identity fraud and application fraud. Here is how they work:

 

·       Identity fraud occurs when a leasing applicant uses someone else’s identity. They are, in effect, stealing that unsuspecting person’s social security number, credit history and rental history. The applicant may look perfect, but once in, they are in and can cause all sorts of problems. They often stop paying rent and illegally sublet the unit.

 

·       Application fraud occurs when a valid applicant provides fraudulently altered documents to make their financial picture look better than it really is. Perhaps they submit a completely bogus document, such as a fake pay stub, or submit a legitimate document that they have fraudulently altered, such as a bank statement with an increased balance.

 

The problem here is obvious. They don’t have sufficient resources to pay rent, and before long, they become delinquent.

 

Protecting Against Fraud in the Rental Industry

It is obvious that both identity fraud and application fraud can easily lead to evictions. How can a property manager protect against these threats? We’ll look at each case individually.

 

·       Identity fraud is actually fairly rare, occurring in just 3 percent of applicants. Furthermore, there are a wide range of companies that help to protect against identity fraud:

 

o   CheckPoint ID

o   TransUnion

o   Others?

 

 

·       Application fraud is a different story. Our internal data shows 18 percent of applicants supply fraudulently altered financial documents. What’s more? There are far fewer options to protect against this type of fraud.

·        

Here’s what we recommend landlords should do to protect themselves against this dangerous— and common—form of fraud:

 

1.     Inspect every document visually. Is every document’s visual quality what you would expect? Or does it look like it has been constantly copied? Ensure that account numbers are shared within different documents. Verify the transactional information and other numbers are aligned and fit the formatting of validated documents that you have previously obtained from same source.

 

2.     Double-check the digits. From the application, call all the telephone numbers to make sure they function. But how do you know if the individual on the line is a past employer or an accomplice? For issuing organizations or corporate HR divisions, look up contact information. Ask for specifics such as a start date, it would be unlikely a friend would know that precise information.

 

3.     Look at the big picture. Does the story agree across all application sources? Inconsistencies or dead links are a red flag. Will your candidates submit paperwork in person or print statements in the leasing office? To ensure a business is legitimate, review LinkedIn pages and histories from online databases such as sba.gov or opencorporates.com to confirm a company is legitimate.

 

4.     Make use of technology. Many property managers are turning to technology strategies, in addition to previous approaches. To prevent a fraudulent tenant from ever signing a contract, new technologies allow for programmatic assessment of tenants and the detection of fraudulent documents.

 

Protect Yourself

Evictions are up—way up. Spotting—and preventing—fraud is a crucial tactic in preventing evictions. Become aware of the types of fraud you face as a residential rental property manager, and make sure you’ve taken sufficient steps to protect yourself.

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