The Rise of Fraud in the Rental Industry
Oct 2, 2023
Why is fraud on the rise?
The process for applying for rental housing has undergone a dramatic shift in the past few years. Gone are the days of hand-delivered paperwork and personal interviews. Today, prospective tenants navigate a digital landscape, submitting most applications electronically—often without ever encountering the landlord in person.
This streamlined approach, while a boon for marketing and broadening the applicant pool for property owners, presents its own set of unique challenges, namely fraud. While the widespread adoption of screening software has it's clear benefits, it has increased vulnerability to application fraud of all varieties.
The most common types of fraud
Increased digitization has given way to a wider variety and more sophisticated forms of fraud. Staying ahead of this ever-changing landscape of fraudulent practices can be a challenge, but the first step is recognizing the primary forms it might take form, including:
Rental Application Fraud: Applicants may engage in intentional misrepresentation on rental applications through falsified income, employment, or references. This deliberate deception undermines application review processes and exposes property owners to significant financial risks.
Document Fraud: Also known as first-party fraud, this category of deception is often associated with rental application fraud. The accessibility of free online tools has made it very easy for applicants to alter paystubs, bank statements, or other documents relied upon by leasing specialists to assess an applicant for residence. Such deceptive practices distort applicant assessments and can lead to the selection of unqualified tenants, significantly jeopardizing property security and financial stability.
Synthetic Fraud: This is the act of creating a fake identity utilizing a blend of real and fabricated data to establish a seemingly legitimate persona. For example, the applicant may leverage a fabricated driver's license and authentic addresses to obtain application approval with the intention of avoiding rent payment without repercussions.
Identity Fraud: Also known as third-party fraud, this is perhaps the most serious form, as it poses severe privacy and financial risks for both property owners and the true identity holders.
Lasting impacts of fraud
Rental fraud poses both financial as well as security and reputational risks, including:
Increased financial loss
Increased evictions and bad debt
Revenue loss and higher vacancies
Increased risk of crime or physical harm to community members
Wasted time manually reviewing applications to detect discrepancies rather than focusing on revenue-generating activities
Reputational damage
Ways to combat fraud
It starts with resident screening - the lowest hanging fruit. Over 70% of property managers discover fraudulent activity after the date of move-in.
The three primary categories for improving your screening fall into:
Identity verification: includes vetting and proofing, which helps with avoiding synthetic identity fraud and identity theft. E.g., CheckpointID or SmartMove's built-in ID verification.
Past history of activity: understanding and using historical data to risk score and underwrite applicants. E.g., Trigo's rental fraud checks or Truework's verification of income and employment solution.
Consortium data: cross-checking and referencing fraudulent activity with consortium data can help detect fraud and generate predictive fraud models. E.g., CIC or First Advantage.
Conclusion
Rental fraud is on the rise, and all roads lead back to your resident screening process. Your ability to mitigate fraud depends on how you design your process and what technologies and data solutions you use.
As we've highlighted, rental fraud takes many forms, the most common of which are Rental Application and Document fraud. There is no single "silver bullet" solution, but historical renter performance and reference checks are paramount. By providing a standardized technology for conducting your landlord references, Trigo simplifies the reference check process and provides another critical layer of vetting to verify your applicant is who they say they are.
