The COVID-19 pandemic brought about a significant shift in the rental industry. Property managers across the U.S. adopted contactless methods of leasing apartments and buildings by using online platforms. Most prospective tenants use these platforms and send in their rental applications online. However, this has also led to an increase in rental fraud. TransUnion, a credit reporting agency, reported a 30% jump in rental fraud warnings during the COVID-19 pandemic between March and August 2020.
It's all well and good to say that rental scams have become more prevalent since the rental industry went digital. But what are the different types of rental frauds? And what can we do to mitigate and minimize the damage they cause? Let's discuss how to identify and protect yourself against fraud in the rental industry.
What are the different types of rental fraud?
First Party Fraud
First party fraud is when someone takes on a financial obligation like a loan with no intention of paying the money back. How does this work with rental scams? The fraudster misrepresents and falsifies documents to improve their credit score.
ID-Theft Fraud
ID-theft fraud (also called third party fraud) occurs when identities are stolen from the dark web. Identity thieves often use data breaches to gain access to sensitive information. Otherwise, it could be supplied to them by a third party. This is one of the most common rental scams.
Fraudsters usually steal information like:
Social security number
Driver's license
Online login information
Credit/debit card information
Fraudsters who have low credit use this method to get a new credit history to scam property managers.
Synthetic Identity Fraud
Fraudsters can also commit rental fraud using synthetic or fabricated identities. Scamsters purposely create these fabricated identities with a mix of real and falsified data to make them look like a real person. This way, there are no third party victims who can report the fraud. However, to property managers, these fabricated identities can look like real people with good credit scores.
Because these synthetic identities look so genuine, it can be difficult for property managers to spot this type of scam. Since 2012, property managers have lost approximately $1 billion to synthetic identity frauds.
When do these rental frauds occur, and how do they affect property managers?
To tackle rental frauds, it's essential for property managers to know when they occur, so they can be vigilant and prevent losses. Most property managers experience fraud after renters move in. Only half of all victims manage to identify fraud at the time of the application. This means that a significant number of property managers fail to recognize fraud when they see it, leading to losses which could be prevented if they had known the signs.
Property managers suffer lasting consequences as a result of these rental scams. The most significant financial blow comes from the loss of reputation. They also have a higher rate of tenant turnover and find themselves spending more time screening applications in the future.
How can I detect rental frauds?
Identity Verification: You must verify the applicant's credit data to make sure it matches the information on record. Once you have verified this information, you can move on to the next step.
Document Verification: You can verify the applicant's documents by sending a verification code to them by text. This way, the applicant receives a SMS to the mobile number given in the application. The SMS will be valid for a specific time only, during which they have to capture and send their Govt. ID for verification.
Device Verification: You must also review the applicant's online footprint. Check the IP address for any red flags.
Authenticate the applicant: Provide your applicant with a one-time passcode and some questions to authenticate their identity.
Start These Good Practices To Reduce Rental Fraud
Detecting and preventing rental fraud early can help you prevent financial losses. Here are some sure fire ways to avoid rental scams:
Use multi-layered security solutions
Make applicants use a 2-factor authentication method to send applications
Use tech solutions like "Checkpoint ID" to verify identity
Use credit and identity screening tools
No technology can guarantee you 100% protection from rental fraud. The most efficient way to protect yourself from rental scams is by being proactive and aware, and by taking timely action.