Rental scams are on the rise, and as scammers become more proficient with technology, the risk of falling victim to a rental scam - even as an experienced owner or property manager - has increased. Fortunately, there are ways to spot potential scammers, avoid common scams, and mitigate the potential financial damage from rental scams - if you take the time to put the right processes and protections in place.
What are the most common rental scams?
Rental scams can run the gamut: from falsified rental applications all the way to lawsuits, identity theft, direct money grabs like deposit or wire transfer scams, or even scams that attempt to re-sell your property illegally. Here are some of the most common:
1. False Refund Scams
How false refund scams work:
False refund scams are becoming increasingly common in the rental industry. In this type of scam, a scammer poses as a renter and sends a fraudulent cashier’s check or money order for the first month's rent and security deposit. They then claim that they've changed their mind and ask for a refund, or claim that their bank made a mistake and ask for a partial refund.
How to spot a false refund scam:
Red flag #1:Someone tries to pay by cashier’s check or money order.
Red flag #2:The person says something like, “my bank made a mistake with the payment amount,” or that they “overpayed” or want a “refund.” There’s a reason this scam is called the “false refunds scam” - the scammer’s next step will be to request that you send money back to them.
How to avoid a false refund scam:
Never accept cashier’s checks or money orders from renters or applicants.Instead, encouragerenters to use a secure payment method, such as a debit card.
Do not return any money. Even if the individual paid by check and it looks like the funds have already deposited, it is likely the check will turn out to be fake. Your bank will remove the money from your account when they discover the fraud.
Take the following steps: 1) Stop payment on the check, cashier’s check, or money order; 2) Notify your bank that the check/cashier’s check/money order might be fraudulent; and 3) Contact the sender to let them know that you have stopped payment and that they can pay by debit card through a secure portal, in the correct amount. If they are a scammer, you will likely never hear from them again.
2. Falsified Rental Application Scams
How falsified rental application scams work:
Some scammers will submit falsified rental applications - either to hide information that would make them ineligible to rent a certain property, or potentially to hide their real identities because they intend to use the property for criminal purposes. They may provide fake references, employment information, or even falsify their credit scores.
This type of scam can be difficult to catch, but it's important to thoroughly verify all information on the rental application and throughout the screening process. If something seems off, it's worth digging deeper to ensure that the potential renter is who they say they are.
How to spot a falsified rental application scam:
We’ve actually written an entire article about how to spot application fraud, but here are a few of the highlights:
Red flag #1: An applicant tries to rush through the application process. Some applicants may even offer you money to “speed up” the process for them, or to skip steps. This is almost always a major red flag.
Red flag #2: An applicant wants to provide their own credit report rather than letting you run one - or provides a credit report that doesn’t match their other paperwork. Sometimes, scammers are counting on you not to look too carefully, or do your full due diligence. A printed credit report that doesn’t match the one you ran - or doesn’t seem to match their bank statements - is usually a red flag.
Red flag #3: An applicant’s background report and rental references don’t match up. If you check the past addresses on an applicant’s background report and they don’t match the addresses of the rental references they gave you, that may mean that they have given you fake references, or a fake identity for their background check - or both.
How to avoid a falsified rental application scam:
Meet applicants in person.A potential renter who refuses to meet you in person before signing the lease is often a scammer.
Verify all documentation. Call employers to verify pay stubs; check with the bank that provided financial records to make sure the applicant really has an account there; go the extra mile to independently verify each piece of documentation provided.
Background check thoroughly. Do some work to improve your tenant screening process and make sure that you’re using updated best practices and screening technology to qualify prospective renters.
3. Fake Listing Scams
How fake listing scams work:
Fake listing scams, also referred to as “smoke and mirrors” scams, usually involve a scammer posting an attractive rental listing for a rental they do not own - often with a too-good-to-be-true price. The scammer will ask the renter to send a deposit or the first month's rent before they can see the property. While it may not have a direct financial impact on you as the property manager, it can still cause havoc for your listing. Some listing websites and agencies will actually suspend your listing once suspicious activity is detected on the site. From the potential renter’s side, fake listing scams can result in applicants being scammed out of application fees, security deposits, and first month’s rent, all without ending up with a place to rent.
How to spot a fake listing scam:
Red flag #1: The price is too low. Fake listing scams will use photos of your property, but post a price far lower than your monthly rental price, in order to entice more applicants to respond.
Red flag #2: There are typos or inaccuracies in the listing. Fake listings often don’t match the actual details or amenities of your property, tend to focus on over-the-top promises, and are often full of grammatical and punctuation errors.
Red flag #3: The listing encourages potential renters to rush the process. Many scam listings and scammers will try to get applicants to send payments without signing a lease or seeing the property, or will offer to “waive” or skip any sort of tenant screening process. These are all significant red flags that a listing is a scam.
How to avoid a fake listing scam:
Watermark your listing photos. Watermarking your photos makes it more difficult for scammers to use them, since many applicants will check the watermark on the photos against the contact information provided in the listing.
Write high-quality listings. The better, more complete, more accurate, and well-written your listing copy is, the less likely it will be flagged as a scam - even if a scammer is trying to use your property photos or name.
Educate potential renters. In your rental listings and in your conversations with applicants and renters, encourage them to always view rental properties in person and check that they are legitimate before making any payments.
4. Identity Theft Scams
How identity theft scams work:
Identity theft scams are common in the property rental industry. Scammers may pose as a landlord or property manager and ask potential renters to provide sensitive personal information, such as their Social Security number or bank account information. They can then use this information to steal the renter's identity or drain their bank account.
How to spot an identity theft scam:
Red flag #1: The scammer communicates through a non-standard channel or uses an email address that is not actually connected to you or your property management company. Some scammers will attempt to include part or all of your property management company’s name in their fake email address, but a scam email will often come from a different domain than your real one.
Red flag #2: The scammer asks for payment by wire transfer or another form of payment not typically used by your property management company.
How to avoid an identity theft scam:
Make sure your renters know how you will - and won’t - communicate. If you email your residents, let them know exactly what email address they should expect those emails from. Or, better yet, use a secure resident app for all communication - and remind your residents never to give their personal information via email, phone, or any other method and that if you need information, you’ll send them a request via the resident app.
Provide a secure payment portal. There are a number of rent collection apps that allow you to collect rent if you don’t have your own white-labeled payment dashboard. Whatever you choose, make sure your residents know that you will never ask them to send rent any other way without first notifying them through an official channel, like your resident app or the specific official email address you provided to them.
5. Lawsuit Scams
How lawsuit scams work:
Lawsuit scams often target older properties. The scammer will move in to a property and create a legitimate-seeming reason to sue the property owner or management company. In some cases, they may even cause damage to the property so they can claim that the damage was pre-existing and include that in the lawsuit. These lawsuits are often thrown out, but in the meantime, the individual running the scam will refuse to pay rent “until the lawsuit is settled,” knowing that in most cases, the property manager can not evict them during the court proceedings.
How to spot a lawsuit scam:
Red flag #1:The applicant has an incomplete rental history, or multiple short-term rentals. A choppy rental history can indicate a history of past rental issues, including habitual nonpayment of rent or issues with past landlords.
Red flag #2:The applicant has falsified information in their application paperwork.
Red flag #3: The applicant has a history of multiple lawsuits or court cases. Most court cases are a matter of public record, but looking up individual cases takes time and is sometimes better handled by a private investigation company experienced in the process. This step is prohibitively time-consuming and expensive for most landlords, so we recommend protective measures like a lease guarantee when this research is not possible.
How to avoid a lawsuit scam:
Screen tenants thoroughly. We recommend using a renter screening service to provide an additional level of protection.
Keep your properties well-maintained and updated. Many lawsuit scams fall into the “health and safety complaints” category, and you can avoid becoming a target of lawsuit scammers by keeping your properties in top shape, including regular mold and pest mitigation, safety inspections, and compliance with all new building safety regulations. If your property is clean, safe, and well maintained, it won’t look like an easy target for one of these scams.
Document everything thoroughly. Scammers look for easy money. If it’s clear to them from the initial application process that you are on top of documentation - taking detailed move-in photos, being thorough in your lease writing, cross-checking every piece of information in their application, conducting regular property inspections, and keeping records of all your communication - they will move on.
How to protect yourself and your properties from rental scams
A rental scam can cost you a lot, and can happen when you least expect it, but following best practices for tenant screening, thoroughly documenting every step of the leasing process, and watching out for the red flags above will help you spot and avoid many scams before you fall victim to them. Additionally, seeking out a partner that offers rent coverage and insurance products as an additional layer of protection
TheGuarantors specializes in industry-leading insurance products that allow you to convert more renters while mitigating your risk and securing your rent roll. With innovative lease guarantee, deposit coverage, and rent coverage insurance products that protect your income in the event of renter default - or a scammer bailing suddenly on their lease agreement, TheGuarantors’ suite of products for owners and operators are your key to a more profitable renting operation.