K. David Meit has been dealing with tenant application fraud in multifamily properties for a long time. Fake IDs were prominent in tenant fraud when Meit, Principal of Oculus Realty, a real estate consultancy, was a property manager in the 1990s. Back then, he had a book that cost about $300 with replicas of all the state and international IDs available. He’d lay it out on his desk and compare the IDs he received with the ones in his book, an old-school, low-tech tenant screening method.
Nowadays, screening for tenant fraud is much more sophisticated, but the fraud itself is also higher-tech. Meit now uses CheckpointID for ID verification, which has one of the world’s largest online depositories of IDs. He has also been using CoreLogic’s SafeRent for years, and he said they have an excellent score model that identifies applicants more likely to pay rent on time, treat their units well, and stay for longer periods. A lot of technology exists for tenant screening today, and for a good reason, given the recent increase in tenant application fraud. “The bottom line is tenant application fraud is on the forefront of almost everyone’s mind in multifamily right now,” Meit said.
Tenant application fraud has always been a problem. Con artists have always existed, they always will. But the pandemic, eviction moratoriums, and a plethora of more sophisticated fraud techniques have recently made the issue a pressing one for landlords and property managers. An analysis by TransUnion revealed that detected fraud spiked by nearly 30 percent between March 2020 and August 2020. Fraud triggers, which TransUnion defines as high-risk applications, reached a high of 15.2 percent in August 2020, compared to 10.3 percent in August 2019. TransUnion’s report said 26 percent of property managers reported up to 100 instances of application fraud in their portfolio in the past year. Simply put, it’s high season for multifamily tenant fraud.
A convenient time for fraud
When thinking about tenant fraud, Meit said it’s important to frame it as no different than any other risk management/loss prevention strategy. “The whole point of tenant screening is to protect the revenue stream,” he told me. Meit said screening for application fraud is the same as establishing a solid preventive maintenance strategy for HVAC systems, an attempt to manage costs and avoid significant losses. Many aspects of property management are open to fraud, but tenant application fraud can be especially costly if landlords get duped. “I always tell my team that collections begin with the application,” Meit said. “I’d rather have strict screening and deny many tenants than get duped by fraud and have a huge backlog of unpaid rent.”
Meit’s team has been especially on the lookout since the pandemic began in early 2020 and fraud reports ticked up. Many property management firms began pushing online applications hard during the height of COVID cases, opening the door to more fraud opportunities. Virtual tours also meant property managers never even met potential tenants in person. The virtual tours were sometimes required by local COVID health and safety standards, more convenient for everyone involved, including scammers.
The eviction moratoriums of the pandemic also made things difficult for landlords. If a tenant cheated his way into a unit, landlords would sometimes have little recourse to evict or collect unpaid rent. Not all property management firms upped their tenant screening game during the moratoriums and pandemic, and Meit said they paid the price. His firm hasn’t been impacted as much because of its strict screening standards. But he said he helps manage a Class A multifamily complex where close to 13 percent of tenants weren’t paying rent because they got in fraudulently and were supported by moratorium laws.
As grim as this sounds, new tech is helping multifamily landlords fight back. Daniel Berlind, a former pro baseball player, co-founded Snappt in 2019 after years of commiserating with property management peers about application fraud. Snappt is one of several tenant screening PropTech firms specifically focused on giving landlords a better and more precise way of identifying sophisticated fraud methods. Berlind said 12.2 percent of all tenant applications in the U.S. in 2021 were fraudulent, according to Snappt’s data, and a whole cottage industry has developed to help tenants create fake financial and other documentation.
A simple Google search will reveal tons of websites with templates for counterfeit documents, there are communities on Reddit and YouTube that provide tips on creating fakes, and some people online even charge for the service of making things like fake paystubs. Many fraudulent docs can also easily be generated on local tech and devices. For example editing a paystub on a computer to inflate income isn’t terribly difficult, and, depending on how good you are, Berlind said the edits can look picture-perfect.
Snappt uses data-driven fraud detection tech to look at documents’ source code and do a digital fingerprint. Digital additions and subtractions made to docs, like on Adobe Photoshop, leave trails of evidence that Snappt’s software finds. Berlind also recommends landlords use old-fashioned ways during tenant screening, closely observing pay stubs to ensure the timing of payments is accurate. Landlords should also call employers to verify employment and income. Applicants sometimes inflate their income on pay stubs, HR may not get back to landlords right away or reveal income, but it’s always worth a shot. “It’s incredibly easy to get scammed by fake tenant application documents,” Berlind said. “We don’t expect landlords to have a forensic accounting background. Leasing teams have so much on their plates that it’s easy for this stuff to slip by.”
When it does slip by, the consequences can be harsh. The most obvious one is that an eviction will usually follow, an expensive process that sometimes takes months. Evictions involve legal and court fees, financial damages, property damages, and of course lost rent. The average eviction costs property managers about $3,500, according to TransUnion data. If you consider that about 12 percent of applications can be fraudulent, it’s easy to see how those costs can add up quickly. There’s also the cost of getting a new tenant in and marketing the unit and the cost of delinquencies and bad debt for a property. There’s the additional concern that someone could pay the rent but isn’t lawfully making their money. Berlind told me that strict tenant screening then weeds out possible ‘underworld’ elements.
The criminal element is a more significant concern than one may think, according to Nicole Upano, AVP of Housing Policy & Regulatory at the National Apartment Association. “It’s common for the use of completely fake documents to obtain a unit and add legitimacy to a fake identity, the ultimate goal is criminal activity,” Upano said. “The crimes can be egregious, too, like sex trafficking. And it’s sometimes difficult for landlords to evict without knowing a person’s true identity.” Allowing a tenant like this onto the property jeopardizes the safety and security of the entire community.
Scammers never sleep
Another common consequence of application fraud is allowing tenants who sublet apartments as part of illegal Airbnb rings. These tenants typically remove their Airbnb income from their tax forms, so looking closely at tax documents can be critical. No matter the consequences, Berlind of Snappt says using tenant screening tech takes some guesswork and subjectivity out of the screening process. This reduces the chance of potential discrimination and fair housing litigation, instead of relying on bias for what looks shady, the tech platform does the verifying work for you.
The pandemic has indeed caused a spike in tenant application fraud, but online fraud has risen in many areas, including real estate wire fraud and scammers duping people with fake rental listings. Berlind of Snappt noted that many tenants may have also lost their jobs or had other dire financial impacts at the beginning of the pandemic, making them more desperate and willing to pass off fraudulent applications. “We don’t judge, we just validate the documents,” Berlind said.
No matter its reasons, landlords everywhere have been on the lookout for application fraud and may be surprised how easy it is to get scammed. Fake IDs are harder to pull off nowadays, but Meit told me fake pay stubs have become incredibly easy to create. Meit created a fake pay stub and secretly ran it by his team to test them, he said it passed with flying colors.
With new technologies, landlords and property managers can fight back against application fraud, but it’s a fight that never ends. Like anti-virus computer software, new fraud methods get introduced every day, and companies like Snappt will have to continuously improve their software and landlords will also have to stay on high alert. Tenant fraud detection has come a long way since the ID book Meit used in the 1990s, but fraud methods have, too. The cat-and-mouse game will continue to morph into the future, and the landlords who put tenant screening at the top of their priority lists will be better off than those who don’t.