Rental Application Fraud in the Digital Age
The process to apply for a rental unit looks much different than in years past. Rather than meeting with a landlord in person, applicants can send an application online without ever meeting face-to-face. Zoom calls are common, as are virtual showings.
There are even companies that fully automate the entire leasing process including keycodes, so that you never need to meet the applicant for them to move in.
Reducing fraud should be a top-tier concern as it becomes more and more commonplace. Every day we are hearing of more scams, from people queuing up others to be their ‘landlord’ for references to sophisticated operations generating paystubs and even tax returns.
The digital pool of applicants adds more people to the pile of applications we are getting for every unit, but quite frankly, many of them are looking for a ‘mark’ they can swindle via one trick or another. Small housing providers are easier to deceive than major management companies due to the belief that they have a less robust set of tools.
One of the leading credit bureaus, Trans Union, which is TenantTracks’ primary vendor, conducted a study in 2020 about application fraud. They found that in addition to the switch from in-person applications to digital applications, the COVID-19 pandemic was another contributing factor to the rise of fraud in the rental housing industry.
They found that:
41% of respondents discovered fraud after move-in
67% are concerned about the increase of fraud in the future
Over the course of the coronavirus pandemic, fraud has steadily increased, and 22% of applicants failed authentication or were identified as high risk. During the pandemic, fraud reached a high of 15% compared to 10.3% over the same period in 2019.
It’s important for housing providers to understand the risk factors of fraud, as it can result in several negative consequences. Some lasting impacts of fraud, as identified by Forrester, who conducted Trans Union’s study, include:
Increased repetitional damage: 59%
Increased evictions: 51%
Internal time spent comparing applications to find discrepancies: 46%
Increased financial loss: 35%
Lighter vacancies: 32%
Increased bad debt: 22%
The best way to catch fraud is to have systems in place to prevent it.
Through the process of identity verification, you can make sure that you are actually speaking to the person to whom you believe that you are speaking. Cross referencing the information that you see can show you what lines match up, as well as those that do not match. Does the applicant’s government-issued ID match with the person’s other records? That can include credit information, eviction history, criminal history, and employment records.
Start with a completed rental application. Everything should be filled out, including a full release to conduct an extensive background check. If you are doing this online, you should have the applicants upload a copy of their government issued ID for a first line defense. If the information on the ID and the application do not match, this should be your first red flag.
From there, you can verify everything your applicant provided, and whatever is required within your rental criteria (you do have a WRITTEN criteria checklist, right?) is accurate and meets with your expectations. That would include checking for omitted information, noticeable gaps in the applicant’s rental or employment history (cue criminal records possibility here), or references that just don’t seem to be accurate.
Types of Fraud
With increased digitization comes more types of fraud.
We have all heard of data breaches. Nearly every week, we are notified that our own data has been compromised with an offer for free credit monitoring. You should take advantage of these offers. Forrester estimates that one recent breach alone caused an increase of 5% to 10% in identity theft-related fraud in the U.S.
With fraudsters becoming smarter, companies are having difficulties staying ahead of their advanced tactics. Some types of fraud that landlords should be aware of include:
Rental application fraud: This the practice of lying on a rental application, whether it be providing false income or uploading an altered photo.
Synthetic fraud: This is one of the fastest-growing types of fraud, where an applicant creates a fake identity using real and false information. For example, a fraudster may create a fake Social Security number and pair it with a real address to create a false identity to gain access to a rental property.
First-party fraud: This type of fraud is performed by the individual, typically the tenant, who uses fake or altered information, such as pay stubs and previous addresses, to qualify for a rental property.
Third-party fraud: This is when an individual uses another person’s identity or information to qualify for a rental property, such as misrepresenting who they are with someone else’s social security number, name, and date of birth.
Much of this can be mitigated with adequate screening both on the due-diligence phase of calling landlords and employers, verifying documentation, and during the tenant screening report.
You must learn how to QUALIFY the reference as a reliable historian (this skill is a must have) to weed out those feeding you false information. You also need to be able to identify if a government issued ID is falsified. Bartenders have been doing this for years, so it is a skill that can be acquired
Consumer reporting agencies are extremely good at returning complete and accurate information, even when identities are manipulated. It is central to their business and there are extraordinary business and regulatory pressures on them to do this well.
They must have sophisticated tools for finding addresses, social security number fraud, address matches and mismatches, soundex and nickname logic, and a host of other tools to correlate the data supplied versus the output data that paints a complete picture of the applicant—and that it is actually the same individual who is applying.
Future TenantTracks improvements will include more tools for income and landlord verifications once they pass the first part of the background check.
The more homework you do at the outset to prevent fraud, the better the outcome for your bottom line.
by Paul Jenney
