In March 2019, a 28-year-old in Columbus, Ohio was able to rent several apartments for years using children’s social security numbers. In July, a 26-year-old left behind an abandoned Chicago apartment rented under a stolen identity leaving behind more than $4,000 in damages and unpaid rent. Rental fraud is nothing new, but there are indications that it’s on the rise.
Before the pandemic, the single-family residence (SFR) rental market had fully embraced contactless processes, and multifamily rentals were already starting to follow suit. A driver’s license and some personally identifiable information (PII) was all it took to validate a potential renter, send them a code and appointment time to access a lockbox with a key, and view the home at their leisure, returning the key when they finished. The process was more convenient for everyone and, while it brought a risk of greater fraud, property owners could adopt contactless processes at their own pace in order to keep up with risk mitigation.
Then, COVID hit. Leasing offices shut down. People in the housing industry were frontline workers who still had to keep their businesses going, and they scrambled to respond. They had to rethink their operating strategies and customer interactions, resulting in a bigger and broader adoption of contactless processes, and an explosive rise in online rental applications almost overnight. That cushion of time property owners thought they had to keep up with fraud mitigation disappeared and cases of fraud became rampant. The convenience of online rental processes makes them unlikely to go away, which means these new avenues for fraud need new checks and balances to stop it.
How fraudsters took advantage of the pandemic
The pandemic accelerated digital transformation across industries, and the rental housing market was no exception. Like many businesses, property owners drove contactless operations to the forefront, from online applications to virtual self-showings. Even the multifamily industry that historically relied on leasing agents in their on-site leasing centers had to shift rapidly to a full-on contactless environment. Everyone moved with great speed into digital processes, but often without sufficient validations to ensure applicants were who they said they were. Contactless applications and showings solved an immediate need in the face of the pandemic, but they also gave rise to a whole new operating challenge to combat fraud.
Without in-person showings, property owners, managers, and landlords missed the chance to interact with potential residents face to face, making it easier than ever to pretend to be someone else. Easier access to rental properties allowed fraudsters to illegally sublet units as an Airbnb or Vrbo, or use them as a drop spot for nefarious activity.
Fraudster Facebook groups emerged, identifying properties as easy to get into and selling fraud scheme packages online. According to our internal research, 64% of owners experienced up to 100 instances of fraud in their portfolios in 2020 alone and 48% reported more incidents of fraud since the pandemic began. The rush to digital rental processes may have been more convenient, but it brought with it a greater risk for fraud.
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Property owners pay big
When it comes to fraud, property owners face tangible and intangible costs. Without enough time to get the right checks and balances in place, fraudulent renters were passing background checks, and 41% of rental owners only discovered fraud after fraudsters moved in; among multifamily owners, that number jumped to 73%.
Eviction moratoriums during the pandemic meant that fraudsters could get into a rental unit pretending to be someone with a good credit score and, if they were unable to pay rent, landlords still couldn’t evict. Even after moratoriums were lifted, filing fees, lawyer costs, lost rent, and potential damage to the units make evictions expensive for landlords, not to mention the cost to turn an apartment or rental home for the next renter.
Fraudsters can fabricate data on their applications with a false income or fake photo. They can alter information, like pay stubs, to qualify for a rental they can’t afford. They create fake identities or adopt one from someone else — but no matter the approach, all cases of fraud can cost a property owner their reputation.
In August 2019, police arrested a 52-year-old in Washington with previous convictions for drugs, theft, and criminal impersonation when she attempted to use a stolen identity to rent an apartment. In North Carolina, a member of an identity theft ring who had been arrested several times was leasing an apartment where they cloned credit cards and possessed an illegal firearm. Fraudulent activity on a property increases the safety and security risks for other residents, who may decide not to live alongside neighbors engaged in criminal activity.
Fight fraud with the right checks and balances in place
In the face of increased digital adoption, the rental housing industry needs specific fraud solutions and friction points to combat the new ways fraudsters are managing to evade detection. Just as we do with financial institutions, we can pose knowledge-based authentication questions, like identifying which of a selection of addresses or cars have ever been associated with the applicant. The right tools can ensure the social security number an applicant offers is actually theirs. A one-time passcode can verify the person through their registered phone number. Property owners need to proactively put these checks and balances in place to weed out fraudsters or, if they can’t do it alone, hire a fraud mitigation company to confirm a renter’s identity with confidence.
Research suggests 97% of property management companies experienced some level of fraud between 2016 and 2018, before the pandemic. At the time, fraud solutions were new territory for this industry, but mitigation companies today can make sure an applicant’s online identity profile, credit databases, and PII all match, and alert property leasing agents when an applicant presents a high risk of fraud. If the renter is applying for residency in Texas claiming to live in Los Angeles, but their IP address is in another country, a technology-based fraud solution would detect this and flag them. With the right tools, rental property owners can keep fraud from hurting their business.
Like most things going digital these days, the landscape of the rental market is changing, and property owners need to be vigilant to handle the simultaneous growth of fraud. In the face of this growing threat, third-party companies have emerged with multi-step processes specifically designed for rental housing fraudsters, but it’s up to the property owners to utilize them. Rather than paying for this increased risk with more money and a damaged reputation, property owners who invest in stopping it now will save in the long run.