Importance of Understanding Fraud

Rental application fraud is no longer a rare occurrence, rather it has become one of the fastest-growing challenges property management teams are facing today. The question many property management teams are asking is: What can be done to prevent fraud from entering their communities? Unfortunately, there is no single solution that eliminates fraud completely. However, by increasing awareness, understanding common fraud tactics, and utilizing valuable screening resources and verification tools, property management teams can better identify potential risks and make more confident leasing decisions. In this educational blog we will explore the statistics behind rental application fraud, uncover the fraudsters playbook and discuss tips and strategies for identifying potential fraud.

According to statistics released by the National Multifamily Housing Council (NMHC), 93.3% of property managers have reported experiencing rental application fraud. Breaking this statistic down further, among the property managers who have encountered rental application fraud, 84.3% have identified falsified pay stubs, employment information, or income documentation. Additionally, 63% reported encountering fraudulent identification documents during the application process. Perhaps the most concerning statistic is that 70% of detected fraud was discovered after the applicant had already moved into the apartment community. This highlights the importance of having strong fraud prevention processes in place before a lease is signed.

It’s important to note that fraud is rarely limited to a single falsified document or one questionable paystub. In most cases, fraud leaves behind a trail of inconsistencies and warning signs that, when identified together, can lead to a larger pattern of fraudulent activity. To better understand fraud and how to prevent it, property management teams must first take a step into the shoes of a fraudster and understand the tactics they use.

Before an fraudulent individual even submits an application, they may have already interacted with your team through the leasing process, such as during a property tour. During a tour, early interactions can provide the first clues that an individual may attempt to use fraudulent information or documents. Social engineering tactics are often used to manipulate situations, making it important for teams to recognize key warning signs such as urgency, pressure, oversharing or emotional manipulation. After the tour or interaction with your team, if the individual decides to move forward with your application, first they begin collecting and gathering information that is designed to appear legitimate. Today fraudsters have access to increasingly advanced tools and resources, making fraudulent applications more difficult to detect. Online template generators, AI enhanced documents, document editing apps, or purchasing fake business and/or payroll data are just a few of the methods being used to create fake documents.

After the application has been submitted then it’s time to start looking for fraudulent documentation. When reviewing paystubs, it’s important to keep an eye out for perfect or overly clean formatting, inconsistent fonts, spacing, or alignment. Additionally, if their employer information doesn’t match what’s online or the paystub isn’t adding up correctly, that should be a major warning sign that something may not be correct. Other indicators to keep an eye our for include looking for meta data such as watermarks on paystubs (“PDF Generator” or “Online Paystub Maker”), bank statement with repeating transactions that looks copied and pasted, and finally there is mismatched data between what’s listed on the income statement versus what’s listed on the application.

Another critical area of the application process that requires careful review is the identification documentation provided by the applicant. It is important for leasing teams to understand the security features and key elements included on valid forms of identification. If you or your team are ever uncertain about the authenticity of driver’s license or identification cards, your states local Department of Driver and Vehicle Safety website can be a valuable resource for researching the required features and identifiers that should appear on a valid ID. For example, did you know Minnesota driver’s license includes a hidden walleye? Knowing details like these can help teams become more familiar with legitimate identification and better recognize potential fraudulent documents.

Fraud is on the rise, but so are tools, resources, and strategies available to combat it. If you are ever uncertain of authenticity of a document provided, there are several steps you can take to help verify the information. One helpful approach is to request additional documentation, such as asking for an additional form of identification or supplemental income verification. Another important step is to verify and cross-check the information provided throughout the application process. Ensure that documentation is current and has not expired and confirm that the details listed across all submitted documents are consistent and match the information provided in the application.

This educational blog only skims the surface of rental application fraud and begins the conversation on how property management teams can better understand, identify, and hopefully prevent fraudulent activity within their communities. As fraud continues to evolve, staying informed, recognizing warning signs, and utilizing the right resources are essential steps in protecting your properties and making confident leasing decisions.