Written By: Aly J. Yale
Renters aren’t the only ones losing money to fraud and scam artists. According to new data, a whopping 80% of property managers have fallen victim to fraud in the last two years.
A full 75% of those landlords were unaware of the scam until after move-in, only noticing when a rent payment was missed or another issue occurred. More than a quarter didn’t notice until seven months later or more.
By then, thousands of dollars in rent and other costs have already been lost. According to TransUnion data, an average of $4,215 is owed per fraudulent tenant, and that doesn’t even include the costs to evict, the lost rent during the months-long eviction process and the additional costs of marketing, readying and re-leasing the property.
An Even Bigger Problem
It doesn’t stop there, though. According to Mike Doherty, senior vice president at TransUnion, there are even more long-term costs to consider.
“Besides the huge potential financial losses, reputational damage is also a top concern of how fraud impacts the organization,” Doherty said. “With some of these emerging fraud types, such as synthetic fraud, the process can become even trickier as the ‘resident’ may not even exist in the first place. This saddles property managers with an even longer time frame for identifying and addressing the issue.”
Synthetic fraud — one of the more common types of renter fraud — occurs when the applicant creates a fake identity in an attempt to secure an address, open lines of credit using that address, and then run up the balances until they’ve been maxed out.
“Synthetic fraud has become a new weapon of choice for fraudsters in which the applicant is nothing more than a manufactured identity,” Doherty said. “In the rental industry, these fraudulent identities are used during the application process and if approved, the fraudster now has access to an address for the purpose of establishing credit. While the fraudster is running up high balances or maxing out credit cards under this false identity, property managers are left with a renter that does not exist and is likely not paying rent.”
The problem lies largely in online applications, which now account for 59% of all rental applications, according to TransUnion.
“Online applications are outpacing those that are submitted in-person,” Doherty said. “This shift to digital has increased accessibility and convenience but as a result, has also increased the propensity for fraud.”
Still, online applications aren’t all that’s at work here. According to James Hilliard, vice president and screening GM at RealPage, data breaches, cyber attacks, and easier access to falsified documents also play a role. Falsified documents only cost a few hundred dollars and take much longer to detect compared to other types of fraud, Hilliard said.
Unfortunately, stopping fraud against property managers isn’t always easy — especially as scam artists get savvier. In fact, according to the TransUnion study, 95% of property managers say they have difficulty identifying, preventing and mitigating fraud.
There are certainly red flags landlords can look out for. According to Hilliard, these include things like exorbitant behavior, lavish income claims, refusal to meet in person or a thin credit file. Only listing friends or family as references is also a warning sign.
But noticing these things isn’t always a sure-fire way to recognize fraud — and denying a renter based on them could even pose legal issues.
“Oftentimes even these basic red flags can be deceiving,” Hilliard said. “Applicants live remotely, use a nickname or middle name, or are young or foreign-born and have no established credit history. What’s more, leasing staff individuals can open themselves to Fair Housing related legal issues if their fraud-seeking actions are not applied equally across applicants.”
Ultimately, the best approach is a multi-layered one, Doherty said. Properly pre-screening tenants, requiring all documentation and identification match exactly and using technology solutions designed to mitigate fraud can all help address the issue more comprehensively.