Apartment Rent Fraud Costs Landlords Up to $25,000 Per Eviction

Source: GlobeSt.

Apartment rent fraud is rapidly emerging as a major concern for property owners and managers in the real estate industry. This deceitful practice involves applicants using fake documents to misrepresent their financial status, affecting all types of multifamily properties, from affordable units to luxury apartments.

The financial repercussions are significant, with eviction costs averaging between $20,000 to $25,000 per apartment. Despite these high costs, only 17% of multifamily property owners have implemented comprehensive fraud prevention systems, underscoring a critical need for improved measures.

The Evolution of Rental Fraud

As Mendowa Martin, senior vice president at JLL, explains in a podcast, rental fraud has evolved dramatically over the years. Initially, fraudulent activities were low-tech, involving simple falsifications like fake employment verifications.

However, with technological advancements, fraudsters now have access to sophisticated tools that make it easier to create convincing fake paycheck stubs and bank statements. Remarkably, there are even online communities dedicated to teaching individuals how to bypass income requirements for apartment rentals.

Kent Simpson from Yardi Systems, also a speaker in the podcast, notes that the sophistication of rental fraud increased notably during the COVID-19 pandemic. As leasing offices closed and processes moved online, fraudsters operated anonymously, making it easier to deceive property managers.

Simpson emphasizes the dual challenge of creating a seamless application process for genuine applicants while deterring fraudulent ones.

Types of Rental Fraud and Prevention Strategies

Rental fraud encompasses various tactics, including document falsification, income misrepresentation, and identity fraud. Martin stresses that verifying an applicant’s identity is a crucial first step in preventing fraud. This involves using technology to authenticate identities before delving into other aspects like income verification.

Simpson highlights the need to move away from reliance on easily forged documents. Instead, he suggests using automated asset verification systems that require applicants to log into their bank or payroll provider, reducing the chances of fraud slipping through. This approach not only enhances security but also improves the user experience by minimizing the need for document uploads.

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Financial Impact and Industry Response

The financial impact of rental fraud is substantial, with costs associated with attorney fees, lost rent, and re-renting adding up quickly. Martin points out that while most applicants are honest, a small percentage of fraudulent ones cause the most financial damage. Therefore, it’s essential to approach the screening process with a balance of skepticism and positive intent, ensuring that genuine applicants are not unfairly penalized.

The industry is gradually recognizing the need for robust fraud prevention measures. Martin mentions that while only a small percentage of operators currently have comprehensive plans, there is a growing trend toward budgeting for fraud prevention as a line item. This shift is crucial as it allows operators to invest in technologies and processes that can effectively mitigate fraud risks.

The Human Element in Fraud Detection

While technology plays a vital role in preventing rental fraud, the human element remains equally important. Property managers must be vigilant and trained to recognize red flags, such as applicants who claim to be victims of identity theft or insist on submitting paper documents due to alleged technical issues. Martin shares an anecdote about a manager who was moved by an applicant’s story of identity theft, only to find inconsistencies in the provided documents.

Ultimately, having a plan is crucial for property owners and managers to effectively combat rental fraud. As Martin succinctly puts it, “the firms that don’t have a plan, or the firms that lack in a plan, become a target.” The industry must continue to adapt and evolve, leveraging both technological advancements and human intuition to stay ahead of fraudsters. As Simpson aptly noted, “We will never eliminate all risk, but we can continue to mitigate more of it as time goes on.”

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