• Hi, Kari! I hear that there are growing incidences of application fraud. How can I protect myself from tenant / applicants that provide fraudulent documents or may not be the person they claim they are?

Our top priority as property managers is selecting responsible, trustworthy tenants. Doing so ensures not only consistent rent payments but also reduces the likelihood of future problems or disruptions. We aim to avoid tenants who may cause damage to our rental units, leave unpaid debts, or disrupt the community. Remember, quality tenants make for smoother property management.

Tenant application fraud is regrettably more widespread than commonly assumed, and its prevalence is escalating with the rapid advancement of technology. Over the past several years, fraud has emerged as a growing concern in the multifamily industry. The shift to virtual leasing as well as the financial strain on tenants accelerated by the COVID-19 pandemic has propelled this concern to the forefront for property managers.

Alarming statistics reveal that roughly 1 out of 8 tenant applications may be fraudulent, with the unsettling possibility that some instances may go undetected. It’s crucial to note that an applicant presenting falsified documents is 7 times more likely to result in eviction. And a typical eviction packs a financial punch of at least $7,685 (or more), factoring in unpaid rent, legal fees, and additional charges. These figures scream the need for rock-solid screening measures! It only takes one bad tenant to start a financial disaster.

Today’s fraudsters have devised various methods to exploit property managers and owners alike. To show how common the issue has become, here are some examples of tenant fraud and how NOT to fall victim to them:

• Document Alteration: This includes falsifying credit reports, pay stubs, bank statements, or tax returns to present an inflated income, enhanced credit score, or diminished debt.

To distinguish altered documents, it’s important to employ a discerning eye. First, look at the document’s dates and timestamps as recent modifications may signal tampering. Next, be on the lookout for inconsistencies in font, size, color, or alignment, as well as any glaring spelling, grammar, or punctuation errors that may indicate unauthorized changes. Additionally, closely examine signatures and handwriting for any discrepancies, and compare them to the other documents you may have. These techniques collectively form a comprehensive approach to identifying potentially doctored documents. Although we are not forgery experts, some fakes can be easily spotted if you look closely.

But hey, let’s face it, our naked eye isn’t always as attentive to details as Sherlock Holmes. That’s where technology comes in handy. Take the company Snappt, for instance. It’s a software application that helps property managers and landlords detect and prevent tenant document fraud. It uses artificial intelligence (AI) to analyze documents and images submitted by applicants and flag any signs of alteration or falsification. It can handle various types of documents, such as leases, applications, pay stubs, bank statements, etc.

• Fictitious References: Did you “get” that having friends or family impersonate employers, landlords, or business references is so last season? Brace yourself because your applicants are taking it up a notch. Instead of just relying on friends and family, they’re outsourcing the art of deception to professional services like CareerExcuse.com or individual providers. It’s a whole new level of trickery in the game of fraud! These folks profit from the art of lying. For a mere $5, your applicant can have two seasoned professionals eagerly awaiting your call. As if that weren’t enough, a forged two-page employment verification is just a $10 investment away.

To stay ahead of this elaborate charade, when checking references, go beyond the standard routine. Don’t just rely on calling the phone numbers your applicant has provided. Take a quick detour to the world wide web, and Google the business and current rental building address provided on the application to ensure you’re connecting with the right place, the right phone number and the correct, real person. Ask specific questions that only the real person would know, such as the address of their previous rental unit, the name of their supervisor, or the reason for leaving. Beware of any vague or inconsistent answers, or if the contact information seems suspicious or invalid. It’s the extra step that can save you from falling into the reference forgery trap.

• Concealing Relevant Information: This situation arises when applicants omit legally mandated details like criminal history, eviction records, bankruptcy filings, or ongoing legal disputes. Yes, we call it the “lie of omission.” According to a TransUnion report, 22% of renters openly confessed to distorting information on their rental applications, with criminal history being the most misrepresented aspect. Additionally, a study by CoreLogic revealed that 12.5% of rental applications exhibited a criminal record discrepancy, indicating either nondisclosure or false information regarding criminal history.

To prevent the concealment of relevant information, housing providers should conduct comprehensive background checks covering identity verification, credit history, employment records, and criminal background. This is why it is essential to set clear expectations for your applicants, and make sure they comprehend and approve your thorough credit and background verification process, including your rental criteria. There’s a range of screening applications available offering comprehensive reports for as low as $19.99 to approximately $35.00. Remember that you can charge the applicants up to $62.02 (as of December 2023) for rental applications, so don’t be cheap when it comes to this and find the best screening application available. Personally, I’ve had a seamless experience using Intellirent, which not only streamlines the screening process but also allows landlords to tailor their criteria, collect application fees online, and generate detailed renter resumes. Other applications offered through the Apartment Association of Greater Los Angeles such as ApplyConnect, AAGLA Screening and RentSpree are also fantastic.

Leasing representatives generally have the right to request specific information from rental applicants but it’s also imperative to adhere to state regulations and the non-discrimination principles of the Federal Fair Housing Act. Know what you can and cannot ask the applicants. Implementing a standardized rental application form that clearly outlines required information and the repercussions of providing false or incomplete details is also advisable. This ensures a cohesive and transparent approach to screening applicants, promoting a fair and thorough evaluation process.

• Identity Theft: Assuming someone else’s identity through fabricated photographs and stolen identification, commonly known as identity theft, has persisted as a challenge for decades. Yet, as technology evolves, so do the tricks of fraudsters out to hijack someone else’s identity, turning it into the fastest-growing fraud in the U.S. From fake social security numbers to bogus government identifications, identity theft is an unpredictable venture. In 2023, identity theft accounted for 36% of all reported rental application fraud cases, a significant increase from the 22% reported in 2022. Notably, fraudulent applications linked to identity theft sought higher-end properties, reflected in an average monthly rent of $2,121, compared to the non-fraudulent applications’ average of $1,447.90.

Identity theft becomes a source of financial losses, legal complications, and headaches for property managers and landlords. In 2023, the financial impact of identity theft on property managers and landlords was estimated at $1.2 billion, encompassing lost revenue, damages, and legal fees attributed to the widespread problem. So how do we stop it? Well, beyond the other steps I’ve covered, a fundamental practice, sometimes overlooked, is verifying the applicant’s photo identification and cross-referencing it with their face and other documents. Incorporating technology can also enhance this process, with applications like VeriScan. This identification scanner not only reads and verifies data from the barcode or magnetic stripe of a government issued identification card or drivers license, but also includes advanced facial recognition capabilities, adding an extra layer of security to the verification process.

Always keep an eye out for potential red flags, like mismatched names, addresses, or phone numbers, incomplete or inconsistent information, and any unusual requests or behaviors. Be wary if the applicant offers excuses for not seeing the property in person or seems overly eager to rush the process. This is of utmost significance because if you unintentionally accept an applicant who later turns out to be an imposter involved in identity theft or fraud, you can be held legally accountable for subsequent damages, fees, and fines.

One strategy I find effective is looking up and calling an applicant’s current employer and then asking for them. If I am connected to them from the employer’s business line that is a good sign. I then like to ask them a few questions about their application – if they say they have not applied, you have a problem. If you discover someone engaging in identity theft, be sure to report it to local law enforcement promptly to prevent them from victimizing others through scams.

• Internal Fraud: Believe it or not, it’s happening right under your nose! An inside job, where someone within your office is leasing your apartments to unqualified applicants. Shocking, isn’t it? A report from the Association of Fraud Examiners reveals that the leasing and operations staff in multifamily property businesses is the prime source of internal fraud. As unsettling as it sounds, this is an unfortunate reality that occurs more frequently than we’d like to think.

Leasing agents engaging in fraudulent practices may doctor documents, manipulate income statements, credit reports, or identification cards to bolster an applicant’s eligibility. Another tactic involves using stolen or fake identities, including personal information from deceased relatives or strangers, to apply for rental units on behalf of applicants. Additionally, some agents exploit applicants by requesting substantial upfront payments for rent or security deposits without showing the property or providing a lease agreement, ultimately disappearing with the money or renting the unit to others. To prevent this, it is important to implement internal controls, such as segregation of duties, when it comes to verification of documents and approval of rental applications. It is also important to create a culture of ethics, conduct background checks before hiring any employee, provide training and education, enforce policies and procedures and most importantly, reward good behavior.

So, these are just a few tricks an applicant might “pull” to sneak through the rental application process, but trust me, there are plenty more tricks up their sleeve. Always stay sharp, use a good screening practices, and take advantage of all the technology tools available now to outsmart these fraudsters. It’s not just about protecting our properties and our finances; it’s about upholding the integrity of the rental process and ensuring a secure and trustworthy living environment for all our tenants! Let’s flip the script on deceit and cultivate a rental environment where integrity takes center stage. 😊

Written by Kari Negri, Chief Executive Officer, SKY Properties, Inc.

SKY Properties are not carbon monoxide experts; and this article is based on their experience and research to provide readers with important information. Kari Negri is the Chief Executive Officer of Sky Property Management and is a member of the Board of Directors of the Apartment Association of Greater Los Angeles. Do you have a question for me? Please send your questions and comments to me at Kari@SKYprop.LA.