For any industry that relies on applications and credit checks, fraud is always a risk. This is especially true for the multifamily industry, which has seen a sharp increase in fraud over recent years. As a property owner or manager, you take on risk every time you rent your properties out, but there are ways to protect yourself from rental application fraud and minimize that risk. Avoiding application fraud starts with knowing how to recognize it: which warning signs to look for, and what strategies you can use to make sure you and your properties stay safe.
What is rental fraud?
The terms “rental fraud,” “lease fraud,” and “application fraud” are all related, but have slightly different meanings.
Rental fraud is a term commonly used to describe any misrepresentation of information by a rental scammer – including rental scams that falsely advertise properties, people who use stolen identities to try to rent a property, and more.
Lease fraud describes intentional misrepresentation or false information placed by an applicant on their rental application. It may include doctored photos, falsified income or employment verification, incorrect or stolen identification information (such as social security numbers), falsified credit scores, made-up references, or other misleading or untrue information designed to make an applicant seem more qualified than they are.
Income fraud is the most common type of lease fraud, in which an applicant lies about their income or job title in order to get an application approved faster.
Identity theft is also common in lease fraud, meaning that a person uses someone else’s identity to rent or gain access to a property.
Criminal history fraud can also be common in lease fraud - meaning that an applicant intentionally hides or falsifies their criminal past.
Application fraud is a term often interchanged with lease fraud, but application fraud can actually refer to a wider variety of fraudulent actions, including applying for a line of credit with a stolen identification - and with no intent to pay the money back.
In the rental market, lease fraud is often committed by people who are desperate for housing – or those who want to commit more serious crimes, such as identity theft, or attempting to illegally sell a property they do not own.
Why is lease fraud on the rise?
The 2022 Snappt State of Apartment Tenant Screening Survey found that 85% of managers felt applicants were becoming more comfortable with committing fraud - which is perhaps unsurprising, when you combine the still-competitive rental housing market with global economic financial instability.
Competitive market: RentCafe reported that in June of 2022, there was an average of 14 applicants competing for one rental property. In such a competitive market, applicants with bad credit or criminal history might seek illegitimate means to get approved. Other applicants might be in a hurry to get approved quickly, ahead of others, and so provide false information on their application.
Economic instability: The pandemic-related downturn, combined with the uncertainty and supply chain disruption created by other factors - like the ongoing trade war with China, and the Russian invasion of Ukraine - have all contributed to an atmosphere of global financial instability. Many renters are still on a slow road to financial recovery after losing jobs or income due to Covid-19 shutdowns, which means that scammers who make themselves look like ideal financial candidates for your rental have an “edge” over many real renters.
Technological advances: Unfortunately, technology has made it easier than ever for fraudsters to commit lease fraud. With access to advanced technologies such as artificial intelligence and machine learning, criminals can easily generate fake documents, and even fake photos, in an attempt to evade detection by landlords and property managers.
Why does lease fraud target large multifamily properties and property management companies?
The number of multifamily property managers who reported being targeted by application fraud rose nearly 20% during the pandemic - from 66% to 85%. That’s a significant increase to an already significant number. Particularly, companies who manage a large number of units are often targeted by lease fraud because of:
Fewer in-person interactions: The pandemic caused operational shifts, especially in larger property management companies, to fewer in-person tours and screenings, and more digital applications. Avoiding in person meetings allows applicants who commit lease fraud to avoid answering questions in person - meaning they won’t accidentally give answers that don’t match their falsified application information.
Large volume of applications: Applicants who attempt lease fraud are often banking on their fraud being “missed” in the midst of a large number of applications that must be processed. Multifamily properties are a particular target of fraud rings, who submit large volumes of applications with completely fabricated identities, hoping to overwhelm your property management staff and get approved for one or more units under false identities.
Less time for verification: Property managers handling a high volume of applicants often have less time - or no time - to personally call references, verify bank statements, and contact employers to verify pay stubs.
Fortunately, you can put systems in place and learn warning signs that will help you identify lease fraud more easily, and avoid fraudulent candidates.
What are the warning signs of rental fraud?
Property managers should be aware of the warning signs of rental fraud in order to protect their rental business from potential losses. While there are many types of lease application fraud, there are certain red flags you can look out for when screening applications. These include:
Rushing through the process: Offering to pay extra – or pay in advance – to “speed up” their approval, or pressuring you to rush or skip steps in your application process can be signs of a potential scammer at work. Scammers don’t want you to take the time to look carefully or check references, because they know you might uncover holes in their story - or false information they have provided.
References and background check don’t match: Even if you don’t have time to contact rental references personally, if the references listed by a potential renter don’t match the property owners of the prior addresses in their background check report, that can also be a sign that there is fraud at work. At the very least, it may tip you off that not all of an applicant’s past landlords were happy with their tenancy. At the worst, it may indicate that a renter has provided false references, hoping that you would not take the time to match them with their past addresses.
Incomplete information provided: Potential renters who provide incomplete income or credit information, or whose credit history does not appear to match their pay stubs, may be potential fraudsters. You’ll save yourself many headaches by simply requiring that all applicants fill out every section of your rental application, and cross-checking the income verification they provided with their credit report.
Inadequate or contradictory references: A lack of references or discrepancies between what an applicant’s references say and their background check is a major warning sign that something may be amiss. Landlords should always request at least three references from an applicant, and if possible, do some extra legwork to verify the information they have provided is accurate. It also helps to have questions prepared for references that will help you verify if you’re getting the same story from the applicant’s references and the other information they’ve provided.
Credit reports don’t match: If a potential renter insists on handing you a printout of their credit report, or doesn’t want you to run one yourself, that is almost always a red flag. If you run a credit check, and it doesn’t match the information or printed report the applicant provided to you, you may be dealing with fraud. Generally, it’s better to run your own credit check and be safe, rather than relying on a handshake or a paper printout.
Applicants’ identities don’t match pre-existing social media accounts: While social media isn’t your first line of defense, it’s a good crosscheck when you suspect someone is using a false or fabricated identity. Although there are some people who still don’t use social media, the vast majority of legitimate applicants will have at least one social media account (LinkedIn, Facebook, Twitter, Instagram) that has a significant history of activity (not one or two posts) going back at least a year and matches the identity on their application. If their social media account looks fake, their identity might be too. Social media is also a good place to check if someone is applying under a family member’s name instead of their own.
How property managers can protect themselves from lease application fraud:
As lease fraud becomes more and more common, property managers and operators are taking steps to protect their property rentals. If you’re already conducting thorough background checks:
Insist on in-person or virtual video tours: Now that the threat of COVID-19 has reduced, it's easier to request face-to-face applicant meetings. In-person property tours give property managers the chance to interact with potential renters, ask questions, and verify documentation in person. Even meeting over video allows you to see the applicant and ask some basic questions to make sure their answers match their application.
Verify all provided documentation: Conduct thorough checks of easily forge-able documents like pay stubs, photographic IDs, and bank statements - or, better yet, outsource this work to a professional tenant screening service.
Conduct thorough background checks: We’ve written a whole article on how to improve your tenant screening process, but check your local and state laws, get your tenant’s consent to run the check, and verify that your applicant’s name, social security number, and other identifying information match what they provided. Background checks are your first line of defense against large fraud rings that submit multiple applications with fabricated identities - and they’re another area where a great tenant screening service can save you a lot of time, and catch a lot of fraudulent applications.
Require a lease guarantee: No matter how careful your screening process is, it’s smart to ensure that your rental income is protected. Utilizing a lease guarantee company will help you in two ways:
Some lease guarantee companies are able to predict renter default with a high probability. For example, TheGuarantors’ model was built with over 2,000 variables to predict renter default with 89% accuracy -- far more than the average property management team is able to assess with the screening methods on which they typically rely.
Lease guarantees do just that - they guarantee that your rent will be paid, even if your renter defaults on their lease. They provide an extra layer of security, and an extra measure of risk protection for you as a property manager while helping renters access the homes of their dreams that they may not otherwise qualify for.
Avoid lease fraud and protect your rental income
Lease fraud can create serious headaches and financial losses for property managers, but by being aware of the warning signs of fraud and taking proactive steps to reduce it, you can identify the best potential renters - and protect your business against fraudulent practices and scammers.
TheGuarantors' suite of insurance products can increase conversions for renters while also increasing your protection from potential risk of rent defaults, vacancies, lease breaks, holdovers, damages, and more. Contact us to learn more about how our lease guarantee rent coverage product can help you approve more quality renters while ensuring you receive tailored coverage that will stabilize your bottom line, decrease bad debt, and increase NOI. It’s tech-enabled insurance for modern property managers.