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Handling Fraud in the Rental Housing Industry

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Posted by Pete Evering on July 8, 2022
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Handling Fraud in the Rental Housing Industry

In recent years, the experience of applying for rental housing has changed significantly. With an increase in digital methods and application technologies, fraud in the rental industry is becoming much more prevalent. While fraud has always been a danger to property owners and managers, now it is more important than ever to understand the risk of fraud and how to prevent it.

Fraud in a Digital Age

In an effort to appeal to consumers, landlords are consistently transitioning to online interactions with tenants and prospects. Approximately 59% of rental applications are now submitted online. While this increases convenience and efficiency in the rental process, it also makes it much more difficult to verify identity and confirm application validity when accepting rental applications. According to a study by Forrester Consulting, as many as 97% of property management companies have experienced housing fraud in some form or another. Digital applications also bring new challenges to tenant screening and determining the quality of a potential tenant, which can have a large impact on the security of the landlord’s property.

The dangers of fraud can’t be understated. Of course, no one wants to deal with a fraudulent applicant, let alone a tenant. Landlords are facing a number of consequences and challenges from the increased rates of housing fraud. Fraud in the rental industry leads to increased reputation damage, evictions, financial loss, vacancies, bad debt, and internal time spent identifying discrepancies in applications. This is why it’s important to understand the types of fraud and know how to avoid them.

Types of Rental Fraud

Keeping up with fraudulent individuals is always a challenge for landlords and property management companies as their methods continue to develop and change. These are the most common types of fraud property owners should be aware of:

First-party fraud: This is when the individual directly uses fake or altered information in order to qualify for a rental property, such as offering fraudulent addresses or pay stubs.

Third-party fraud: This is when another person’s information or identity is used in order to qualify the individual for a property, such as using someone else’s name, date of birth, or social security number.

Rental application fraud: This refers to directly lying on a rental application, such as providing false income or uploading an altered photo.

Synthetic fraud: This is increasingly the most common type of fraud; the individual pairs real and fake information to create a fraudulent identity and qualify for a rental property.

Preventing Rental Fraud

Landlords and property managers face a number of weaknesses and challenges in identifying and avoiding fraudulent applicants. Management companies report spending excessive time finding discrepancies in applications, lacking the ability to respond quickly to changes in fraud methods, lacking skills and resources to identify fraud, and lacking time or money to invest in purchasing, using, and updating fraud identification tools. Most current fraud solutions are reactive rather than proactive, so no action is taken until after the tenant moves in.

Some of the more effective fraud prevention methods include identity verification and understanding past transactions during the application process, as well as using consortium data to be aware of confirmed fraudulent activity and individuals.

Property owners and managers can best protect themselves by constructing thorough and consistent fraud management strategies in order to identify fraud quickly and preventative. Implement fraud identification when applications are first submitted, rather than later in the process. Integrating a versatile screening solution that uses a regularly updated fraud identification system is much more effective than relying on staff alone. These strategies are important for protecting financial security and safety in the rental process.

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