In 2023, rental owners wrote off $4.2 million in bad debt. Almost one quarter of that, 24.5 percent or $1.029 million, arose from landlords renting to applicants who completed fraudulent applications reports the National Multihousing Conference (NMHC). Application fraud has become so prevalent that in that year, 93.3 percent of rental owners experienced fraud, reports the NMHC Pulse Survey from Jan. 24, 2024.
Some 80 percent of rental owners and managers have seen applicants misrepresent information on applications and 84.3 percent reporting income/employment documentation falsification, reports the NMHC. Is that representative of all rental owners or just NMHC members? They don’t say, but if the members of that professional organization have seen fraud become rampant in their businesses, imagine how well owners with less rental property management experience and knowledge do in comparison.
Without question, application fraud gobbles rental owners’ and managers’ bottom lines, making running their businesses less profitable. Nearly one-fourth, 23.8 percent, of evictions can be traced back to fraudulent applications reports NMHC. How do the fraudsters do it?
That 84.3 percent who falsify income and employment documentation is most common, and we’ll look at how they do that in a minute. But they do more than just misrepresent income and employment; they go so far as to dummy up fake Social Security cards and driver’s licenses, and create phony bank statements and credit reports. None of those are easy or inexpensive and done so it will actually fool a suspicious eye. Figure fooling a careful rental owner or manager will cost in the neighborhood of $500. Fortunately, many bad tenants choose to do the job themselves and not very well, leaving bright, unmistakable red flag that says “fraudulent application.”
Let’s look at the different documentation that bad tenants use to worm their ways into rental properties. Many start, if they are to create an identity different from their own less-than-desirable one with a driver’s license. Those can be had from several online Chinese companies for $80 to $100. The more expensive ones include appropriate watermarks, barcodes, holograms, and scannable data. The best customers for these driver’s licenses are underage kids who want to be able to drink, but fraudsters may use them to help create a false identity. If a fraudster wants to go whole hog, he or she can even get a passport from these companies that will fool scanners at the airports and immigration. Those, of course, come at a price much higher than $100.
A fake Social Security card is easier to get and create, but comes with verification problems when someone tries to match it with an existing account. It could be one that doesn’t exist or that of someone else. If it matches another person’s numbers, the fraudster has stolen an identity, a felony that could land them in prison.
You can easily buy fake W2s. bank statement, and credit reports from numerous companies on the internet. The costs of those can vary depending on how real someone wants the document to be. Those can cost in the neighborhood of $200 to $300 for good counterfeits.
Two of the oldest tricks are the phony employer and previous landlord. They still use friends to pretend to be employers and previous landlords, but some companies will offer imposters to answer the phone acting as the employer and previous landlord. That costs money, of course, but those companies promise to pass as credible.
Fortunately, as I mentioned earlier, when bad tenants try to do the job themselves, maybe to save money, they’re sloppy. Doing a phony document properly requires care and precision, qualities these folks probably don’t have. After all, they’ve mismanaged their entire lives, so when they find themselves in the position of having to fraudulently obtain a rental home, why would we expect them to use the care and precision required to fool the suspicious eye of a rental owner or manager? So you’ll see W2s without a company name and address on them, much less a logo, and bank statements that don’t match a standard bank statement in either font or organization. And credit reports? Just try to create a credit report that matches the way a real credit report looks. The spacing may be off, the typeface may be just a little different here and there with different font sizes and appearance such as blurry characters and misspelled words. Most rental owners and managers pull credit reports themselves, anyway, easily catching the fraudsters who give the owner their phony one.
Staying one step ahead of the fraudsters isn’t possible. New scams crop up daily. But the old, tried and true screening methods work just as reliably as they ever have to catch applicant lies. Verify everything. Doubt every document that an applicant gives you until you prove it’s accurate. If your applicant looks too good to be true; if everything about them is perfect; if their credit score is 800; if they’ve supposedly worked at their high-paying job for three years, earning far more than enough to pay the rent comfortably; if their previous landlord has nothing but glowing remarks about them, be suspicious, very suspicious.
Our response is simple. Does the credit report match the one your applicant provided? If not, reject. If the employer they listed has never heard of them (and you called the number you found on the employer’s website), reject them. If their previous landlord’s phone number isn’t the one for the one listed in county tax records, send them on their way. Established screening methods work. It just takes time to confirm everything. But you owe it to your investment and to your other tenants, the good ones, to see that the people who move into your rental properties are quality tenants.
In most rental markets today, with vacancy rates low, with waiting lists long, we can afford to make sure that the applicants we get are indeed the applicants they say they are.
