As a result of COVID-19, 20.5 million jobs (and counting) were lost in April, and the unemployment rate increased to 14.7%. Landlords are wondering how to service a mountain of debt. No matter where the unemployment peaks, economists predict that it will take years to get the jobless rate back near pre-covid levels.

Unfortunately, many unemployed or underemployed individuals are resorting to financial documentation application fraud to gain access to apartments they otherwise would not qualify for. Application fraud is expected in the financial industry, but many property managers don't realize that it's widespread in the rental industry. Fraudsters are using sophisticated techniques to create fraudulent financial documents to use in rental applications. While tenants are trying to maintain a roof over their heads, landlords must find ways to protect their buildings.

Rental application fraud

Rental application fraud is purposely lying on a rental application. This does not include mistakes, which are bound to happen from time to time. It is a clear misrepresentation in the rental application. The intent is the differentiator. The availability of photo editing software, high-quality cameras, and personal scanning devices tempt even the average applicant to want to lie a bit here and increase their income a bit there.

There are different types of rental application fraud.

To slow fraud risk in the rental portfolios, property managers must be aware of the primary forms of fraud. First-party fraud, third-party fraud, and synthetic identity fraud are categories of attack types that differ in execution.

Third-Party Fraud

Third-party fraud is when the fraudster misrepresents is who they are. Third-party fraud occurs:

When an imposter uses another person's information to open new accounts or take over existing ones, without the individual's awareness of whose data is being used.

- Imposters may obtain information such as a name, date of birth, or social security number to get an application through the pipeline. 

First-party fraud

Tenant rental application fraud frequently falls into this category. First-party fraud is when:

- The individual committing the fraud uses their own identity intending to commit the fraud. These fraudsters aim to blend in with good customers and achieve long-running scams. In the case of first-party fraud, the fraudster is deceptive about their information and intentions. Fake and altered financial documents are standard in this group. A quick search online for "Fake Pay stubs" results in the availability of these in minutes. In this case, applicants will alter pay stubs to verify employment or make it look like they make enough income to qualify. Some use the pay stubs from their real jobs but change the numbers to look like more. 

Synthetic ID Fraud

Synthetic ID fraud is the fastest-growing form of fraud. Synthetic ID fraud is when:

- Applicants combine real and fake information to create an identity. This is a sophisticated type of fraud since Social Security numbers can be tricky for fraud offenders because they are a government-issued entity and harder to falsify.

- Synthetic fraud is an advanced fraudsters method in which the "applicant" is a wholly manufactured identity. 

These fraudulent identities are used during the rental application process. The goal is to gain access to an address to establish credit. The fraudster runs up high balances or maxes out credit cards under this false identity; property managers are left with a resident who does not exist. As a result, property managers are unable to collect rent.

How property managers can protect their properties from fraud

Fraud is difficult to detect. Experienced fraudsters have become progressively professional at disguising their intentions and falsifying documentation. What property managers need is better technology so that they may flag fraud at the first warning sign. Fortunately, today, we have the technology to detect and prevent first, third, and synthetic identity fraud.