Half of all renters live in SPRs, industry lingo for Small Property Rentals. The Census Bureau defines those as one-to-four family dwellings, and they make up 76 percent of rentals. Individual owners own 92 percent of them. That’s the good news. I’ll explain why in a minute.

The bad news is that SPRs reported a decline in revenue of more than 10 percent in 2020. The pandemic resulted in 15 percent of tenants in those properties lagging at least six months behind in rent for a median past-due rent of $2200. With evictions beginning again on August 1, it will mean more vacancies and more opportunities for landlords to do proper screening and ensure qualified tenants.

More good news is that owners of SPRs have an advantage in screening over large apartment complexes. They can insist on face-to-face screening, something the large complexes have difficulty doing. Because with all the would-be tenants scrambling for places to live, many leasing agents get overwhelmed by the number of applicants they need to process.

Transunion reports that digital fraud transaction attempts have increased 46 percent worldwide and 22 percent in the US alone.

Most large complexes do screening digitally, meaning applications are filled out online, documents presented online, screening done online. Applicants may rent units sight unseen relying on the photos and descriptions on the apartment websites. They fill out the forms, present all the documentation online, and only maybe talk on the phone to a leasing agent. The opportunity for fraud approaches overwhelming. It turns out, reports Snappt, that 97 percent of properties have experienced some kind of renter fraud and 15 percent of applications have been falsified in some way.

Because they have so many applicants, leasing agents must rely on the truthfulness of the applicants. Big mistake. “This is where the story really goes sideways,” explains a 35-year property manager in Multifamily Executive who prefers to remain unidentified. “They hit you in a week with 25 applications, and you’re overwhelmed with the paperwork. Then, they inundate the staff, calling and asking the same questions over and over, putting you in crisis mode to wear you out and try to get through. They know the more pressure they put on you, the more mistakes you’ll make.”

As more and more evictions take place, and more and more evicted tenants look for new places to live, more and more falsified documents will show up to “prove” what qualified residents these folks will be. Considering how long it takes to screen each applicant, and the leasing agent having to rely on the documentation the applicant presents, agents skimp on verifying information.

Leasing agents’ jobs are to get tenants in units, to fill vacancies. They have to show paperwork to their bosses that they have done their due diligence in screening, but they also need to show they are doing their leasing jobs by filling vacancies. But with so many applications, they can only cull the most obviously unqualified, the ones who haven’t produced the most credible fake documents.

“It’s absolutely a crime,” says Alec Page, vice president at Park City, Utah–based RET Ventures, as reported in Multifamily Executive. “Unfortunately, it’s very hard to track down and prosecute someone who’s rented an apartment sight unseen with entirely fake documents. Once they’ve done that, the damage is done.”

Here’s how they do it. Application fraud comes in three permutations:

One is application and document fraud. Numerous websites offer fake paystubs, W2s, bank statements, IDs, and anything else for applicants to slither their ways into rental properties.

Two is synthetic fraud. They use synthetic identities to establish credit histories involving false Social Security numbers with credit reporting agencies. Those synthetic identities are used to obtain credit cards in the names of fictional people; then they use online credit processing to charge transactions to credit cards.

Third is old-fashioned ID theft. They use false, fraudulent, or fictitious identification documents belonging to actual people, using existing accounts, such as credit or other financial accounts. Javelin Strategy & Research reported in 2008 how they do it:
• Lost or stolen wallet, checkbook, credit card (33 %)
• Off-line transaction (23 %)
• Personal connection to identity thief (17%)
• Mail theft (6.0%)
• On-line identity theft (12 %)
• Data Breach (7%)
• Other (2%)

Once established, they go to town, often on unsuspecting, over-trustful landlords and people whose identities they have stolen.

Brian Zrimsek, industry principal for Cleveland-based MRI Software, says that when a fraudulent applicant slithers through screening, it takes six-and-a-half months to resolve the issue. Figure average rent in $1500 a month times six-and-a-half months and the loss to the company is just under $10,000 for one unit. For even a 20-unit building, that puts $200,000 at risk.

Because there’s just no time for multifamily leasing agents to do a proper job of verification with all the applications and to fill those vacant units, SPRs (Small Property Rentals) and their owners have a real advantage. First of all, the owners take applications in the order they are received, put a date and time on them, and verify first applications first.

And they verify everything. Marygrace Navarro of Stonemark Management in Atlanta, reminds all property owners, landlords, and managers, “You can’t just accept the employment and rental verifications the applicant gives you. You have to invest the time and energy to check it all yourself.” Check that the phone and address of the “employer” are real by looking them up online. Check that the previous landlord is real by checking county tax records to verify that the person listed as the landlord actually is. Do a Social Search, which tells every address where the applicant has lived. Get picture ID and meet every adult who is moving into the property.

That’s how to cut the fraudulent documents off at the knees, how to keep lying applicants from ever getting to move into your properties. Small property owners have a huge advantage over the huge multifamily companies in screening and ensuring top-notch tenants because they can and will take the time to do it properly with an eye on protecting their investments.

By Robert L. Cain