How to identify tenant fraud before it leads to more evictions

The wrong information can lead to evictions. A firm managing 3,500 units with a 20 percent eviction rate may endure 600 evictions every year, totaling over  $1 million per year in expenses related to fraudulent rental applications alone. The typical property manager in a 2020 study by ReRez Research says at least 15% of evictions involve tenants who submitted fraudulent applications.

Tenant application fraud that goes unchecked inevitably leads to evictions

The deception of application fraud can vary: some applicants inflate their income; others hide it or disguise its source to cover illegal activity. With the presence of image manipulation technology combined with affordable advanced personal scanning equipment, it is much easier to change and edit a document and convince someone it is real. This along with COVID-19’s rise in unemployment rates have led to the increase in fraudulent rental applications.

How to identify rental fraud

To avoid the eviction process, property managers must be even more diligent when vetting applications. Technology-enabled tenant screening software combined with good-old-fashioned manual reviews are the secret sauce to getting it right.

"If someone understands the law, they can stop paying and live rent-free for six months while we work to evict them," according to Chad Vasquez, general manager of Circa LA. "That's $150,000 for one of our penthouses."

Some ways to reduce fraud also include:

1.    Review documents for visual cues, checking for obvious inconsistencies such as misaligned numbers or degraded quality of text

2.    Check that transactional details and other figures on documents from financial institutions match formatting in verified documents received from the same source in the past

3.    Make sure the numbers add up: for instance, see if claimed income totals the same amount printed on pay stubs or other financial documents. 

Many property managers also invest the time to verify income and references by calling numbers and clicking links listed in applications, or looking up the contacts themselves.

To ensure the person you're speaking to is the previous landlord ask questions they can answer easily while a friend may be hesitant to answer, such as:

1.     "What was the start date for the applicant?" Remember that businesses have limitations on the information they can disclose about employees, so don't reach beyond your role.

2.    'Yes' or 'No' questions may aid in this effort: "The applicant stated she earns $4,000 per month. Is this correct?"

Background checks can surface prior evictions but don't highlight fraudulent intent.

Thorough application vetting can save property management companies thousands in eviction processing costs. Credit checks will provide information on payment history, residence history, prior bankruptcies or evictions, and the tenant's credit score. Since a credit check is run directly by the screening personnel and sourced from a third party, it is harder for the applicant to forge.

While most managers traditionally gather the information, some states have passed or are considering 'fair chance' or 'clean slate' ordinances prohibiting criminal background checks. They do so based on the belief that criminal habit is driven, in part, by a lack of housing. Criminal history reports may search national, federal, state, and county databases to supply notice of convictions or any pending criminal cases.

According to a 2018 study from Forrester Consulting, 75% of property managers only identified fraud after move-in, with 25% identifying it seven months or later after move-in. This becomes particularly challenging in the current environment, where evictions are not possible.

If the tenant has been sued in the past or is currently involved in litigation, it will show up in public records. Take note of tenants who have been:

1.    sued for unpaid rent

2.    unpaid child support

3.    Any other serious financial matters- which may indicate a pattern of nonpayment.

Technology can help property managers ID fraud and fend off the eviction legal process

Evictions result in monetary losses and can be tough on property managers, apartment communities, and all renters. To decrease evictions, property managers need better information to help them identify renters who are the best match for their properties.