As real estate investors, few things are scarier than rental application fraud. Fake employment, phantom references, and bogus credit reports are all realities many of us have faced at one time or another. And, according to a new survey from Snappt, the number of fraudulent rental applications has actually risen 9% during the COVID-19 pandemic.
In their 2020 Fraud in the Rental Industry Survey, Snappt found that two-thirds (66%) of property managers reported that they have been the victim of fraudulent rental applications. Managers also noted that 10% of fraudulent applications are going unnoticed during the screening process.
According Daniel Berlind, CEO of Snappt, “There are a number of factors that are fueling the increase in fraudulent rental applications. The increasing number of self-employed applicants, a move to online rental applications, and the increasing availability of tools to fraudulently alter financial documentation all make the problem more common.”
The knock-on effects of fraudulent applications can be severe, with managers reporting their top five negative outcomes as:
- Costs associated with having to evict bad tenants.
- Physical damage to the property.
- Missing out on renting to good tenants.
- Criminal activity at the property.
- Loss of reputation.
How to protect against rental application fraud
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.
There are a number of ways landlords can protect themselves from rental application scams. Here are a few tips to help you avoid fraudsters:
- Technology is your friend: There are dozens of tenant screening tools out there that leverage the power of machine learning and artificial intelligence to help landlords uncover inconsistencies and red flags during the initial screening process.
- Use identity verification: Most fraud occurs due to loose verification policies or skipped steps in a robust screening process. Obtaining government-issued identification and matching that with credit, criminal, and employment records is a must for any tenant screening process. Included in this step is a date of birth and social security verification.
- Do credit checks: No matter what service you use, this step is mandatory and will give you information that you can validate against the application and with the prospective tenants.
- Watch for omissions: A focused and in-depth review of a rental application may surface small white lies or omissions. Although perhaps not a reason to deny the application, further checks with the prospective tenant are necessary.
- Be wary of gaps: If a tenant is unable to provide certainty on their rental and employment history, then this may be a clue that further inquiry is needed.
- Check references: Ask employment and landlord references follow-up questions about the type of business, services, or amenities to help validate the true existence of that reference. Conduct online checks beforehand to have your questions ready.
The bottom line
Despite rental application fraud rising, particularly amidst COVID-19, there are ways for landlords to protect themselves. The consequences of allowing a fraudulent tenant to rent your unit can be financially devastating for smaller landlords.
Although 66% of property managers have experienced recent fraud, if you deploy sound tenant screening processes, you will limit your risk of actually allowing a fraudulent applicant to become a tenant.