How to Screen Applicants like a Pro: Catching Fraud (part 5)

One of the reasons why professional-quality tenant screening is so important is the need to catch misleading and incorrect information on rental applications - and that need is more crucial now than ever before.

Due to Coronavirus, the rental industry has seen a huge increase in the number of rental applications with accuracy issues.

According to a TransUnion survey of 82 multifamily rental executives, the frequency of fraud has escalated by nearly 50% since the pandemic began. Similarly, the Fraud in the Rental Industry Survey by Snappt uncovered that two-thirds (66%) of property managers have been the victim of fraudulent rental applications in the past year alone.

Many of these applicants say that they’re “living with relatives” to avoid disclosing the landlord’s name and address of a property they were evicted from for nonpayment of rent, or forge payment slips to create the illusion of stable income.

So what can you do during the screening process to protect yourself from tenants who are trying to conceal a bad prior rental history?

How to catch rental application fraud

In order to protect your investments, you need to screen tenants deliberately and thoroughly during the application process.

But how, specifically, can you catch fraud during the tenant application stage?

There are certain steps in the screening process you need to prioritize when trying to catch frauds:

Familiarize yourself with the most common types of fraud.

TransUnion reported that 41% of landlords missed frauds during the screening process (!!) and consequently had the applicant move in. The goal of this series is to help you avoid becoming part of this statistic by knowing how to spot fraud on an application.

The most common type? Identity fraud.

Identify fraud can happen in multiple ways, such as: 

1. Using someone else’s driver’s license
2. legally obtaining someone else’s Social Security number
3. eating a whole new identity entirely

A decent amount of Class B tenants live paycheck-to-paycheck, so are more likely to be late on rent payments if they get sick and miss work, lose a job, etc.

Another, more dangerous type of fraud is known as synthetic fraud. Synthetic fraud is when the person uses a mix of real and fabricated identities to craft a new identity, but with great credit. This enables them to live under the radar without paying rent for a bit before disappearing. Since there are no victims to report the fraud, landlords often can’t recover their losses. And since many landlords don’t screen applicants with outstanding credit as strenuously as they do those with lower-to-moderate credit scores, these fraudsters can slip through the radar quite easily.

Next we have income fraud, where the applicant tries to falsify employment information (like getting a friend to claim they’re working for their company, saying they’re self-employed, etc.), or lie about their income stability (e.g. falsifying payment slips - either the amount, or the dates on the slips). This can make them seem like they’ll have the ability to pay rent, when in reality they have little to no steady income.

Last, and perhaps the most common, is address fraud. We’ve seen a huge surge in the number of applicants lying about their current address to cover up an eviction, either by claiming they live with a relative, or by having a friend pose as their landlord during the screening process.

Sniff out suspicious information

As a property management company operating for over 2 decades, we’ve had a lot of experience dealing with fraud on applications. And we’ve noticed how prevalent it’s become in recent months due to the pandemic.

Just recently, we received an application from an 18-year-old who claimed she was making 60k a year on her paystubs. This sounded only a little suspicious on its own (but plausible). However, she had no credit and no savings. 

That raised our eyebrows.

So, we screened like a pro and checked her bank statements. There, we discovered that she was actually receiving unemployment payments—clearly, this meant she was not making $5k a month.

How could this be the case? She was faking her paystubs! So, keep your eyes peeled for any suspicious information when checking your applications, and if something seems fishy, always investigate further.

A good way to do this is by developing your fraud “instinct”. The more familiar you are with government policies, legal processes, local rules and regulations, the more you’ll know when an applicant is lying.

Catch fraud by independently verifying information.

If you want to make sure that only responsible, stable tenants rent your property, you need to screen them like a pro. Pros never rely on accepting information at face value - they take the time to independently verify all information, so they can be 100% sure they’re getting a true and accurate picture of an applicant’s rental history.

Specific steps you can take to verify applications:

1. Check the details: There should be no suspicious information or numbers. Make sure the basic details like their name, home address, SSN, and employer’s information all match (across every piece of documentation they submitted). Also look out for typos, blanks, or other discrepancies.

2. Cross-reference with their bank statements: Their paystub amounts, stated hourly wage, and bank statements all need to add up. Major discrepancies between pay periods are suspicious.

3.Ask for additional validation: Get their tax returns and call up their employer to verify the applicant’s financial information. The amount on the paystub (x12 months) should be near, if not equal, to their yearly or YTD salary.

4. Get additional help: There are plenty of tenant screening tools out there that can help you spot inconsistencies. RentalConnect is one of them, offering a cheaper alternative to a full tenant screening. You can also get in touch with a property management company, as a good one will have a thorough tenant screening process and experience with spotting frauds.

Final Thoughts

There are ways for landlords and investors to protect their investments, despite the prevalence of fraud.

Know how to spot common fraud and screen all your applicants well—this will help you identify potentially problematic tenants before it’s too late!

Image Courtesy of Moose Photos