The rising threat of fraud in multifamily, where it is coming from, and a practical guide to protecting revenue, reputation, and resident experience.
By Paul Willis
Fraud remains prevalent in the multifamily industry and shows no signs of dissipating. Bad actors are constantly finding new ways to circumvent systems, particularly through the use of generative AI and other bleeding-edge technologies, aiming to remain one step ahead of the industry’s fraud prevention and cybersecurity initiatives.
The industry, naturally, has no choice but to fight back.
A panel on the recent Entrata webinar Fraud: Multifamily’s Rising Threat discussed ways multifamily can short-circuit the fast-evolving fraud tactics, including the utilization of traditional methods, innovative AI-powered solutions and the intense monitoring of social media-driven scams, such as fraud kits.
While fraud has been a perpetual concern in the digital multifamily landscape, the numbers are telling. A recent survey from the National Multifamily Housing Council showed 71% of respondents indicated fraud has increased significantly over the past 12 months. A staggering 93% of respondents have experienced it firsthand.
Forms of fraud in multifamily
Multifamily operators witness fraud in a number of ways. The NMHC survey indicated that 84% of those experiencing fraud encountered falsified income information, while 80% said applicants were misrepresenting their personal information on applications and 70% have dealt with some form of identity theft.
Other forms of fraud not as prominent in the industry include illegal subletting, unauthorized inhabitants and various types of payment fraud.
Social media and generative AI (GenAI) are further blurring the lines. They are helping organized fraud rings sell fraudulent rental kits at scale—kits that contain a collection of forged or stolen documents used by individuals to misrepresent their identity, income and creditworthiness to secure a rental property.
The rental kit threat is genuine and fairly prevalent, according to Keir Breitenfeld, senior vice president of product management and portfolio marketing for Experian. It is social media-driven, he said, as perpetrators are learning online and sometimes using the practice as a side hustle.
Tools to combat the rising trend
Traditional multifamily fraud tools are holding up well, according to Kathleen Maley, VP of fraud analytics and commercialization at Experian. That’s with one caveat—the tools perform well when they are used consistently and strategically.
While it’s difficult to think of eyeballs as a tool anymore—in the form of scouring paystubs for inconsistent fonts and uncovering inaccuracies in bank statements—tried and true digital tools such as ID verification, income verification, document analysis and behavioral analysis still serve as powerful complements to traditional screening and background checks.
One of the reasons that fraud is on the rise, she said, is because GenAI has made it so much easier and quicker to produce false documentation. Tools that can detect falsified documents are available, but the vast increase in fraud attempts makes it more difficult to pinpoint each instance. This is where the orchestration of the tools is important, she said. It’s about layering the tools in an intelligent, linear fashion to optimize fraud prevention and preserve the customer experience—all at a reasonable price point.
How multifamily fraud compares to other industries
While fraud tactics possess a commonality whether it’s within ecommerce, financial services, multifamily or any other vertical—the primary differences are the specific types that impact each industry. In multifamily, of course, most fraud is rooted in rental-related scams.
The type of loss derived from fraud is also unique to the sector, including loss of rental income, the cost of eviction actions, unpaid damages and the overall high cost per incident. Potential auxiliary effects can include high resident turnover and lower property valuations.
The commonality across industries is fraudsters’ underlying act of creating synthetic identities, manipulating real identities and documents and bot attacks. Whether the fraud is to lease an apartment, open a credit card or gain access to healthcare, all are taking advantage of a process.
With GenAI and agentic AI (an advanced form of AI focused upon autonomous decision-making and action) entering the fray, an ability exists to perpetrate fraud at scale. Large-scale fraud undertakings have the potential to overwhelm typical capabilities and operational workflows.
The double-edged nature of AI
As with virtually every facet of the rental-housing industry, talk of AI-based solutions is prominent regarding fraud prevention. The presence of AI, however, has multitiered consequences. On the positive side, it serves as a valuable tool for providers to build better analytics and iterate more quickly. AI can help better orchestrate workflows and next-best actions using a host of different types of signals, such as digital signals, identity signals and many others. Overall, it’s a substantial tool.
The flipside is that it’s also a tool for fraudsters. With the massive rise of digital engagement since 2020, an operator’s ability to track digital signals—such as device intelligence, network intelligence or behavioral intelligence— is even more paramount. For optimal results, operators should combine tracking solutions with traditional ID and document verification as part of a layered solution to short-circuit any AI-related fraud attempts. Together, these tools help positively link the person to the type of document they’re presenting and the channel they are utilizing.
According to Maley, fraudsters have an initial advantage when new forms of AI are unveiled, because they operate in an unregulated environment. Their sole goal is to get through the process as quickly and easily as possible. Conversely, operators want to follow the law when combating fraud but without causing friction to everyday applicants and residents.
Primary takeaways
The panel, which included Entrata Industry Principal Virginia Love, emphasized the importance of keeping current practices in place. Properties should continue to utilize ID verification, fraud risk scores, stepped-up authentication, one-time passcodes, doc verification, behavioral analytics and device analytics. If necessary, they can work with a combination of providers to elevate efforts and ensure the components are working in complementary fashion.
Operators who recognize signs of fraud early in the process better position themselves to thwart any disingenuous efforts. The first step is to determine whether an applicant is a bot or who they claim to be. Are they filling out the application manually, autofilling or copying and pasting from elsewhere? Tech can help detect those types of fraudulent activities, so operators can discontinue the application process if those behaviors are detected. Tech can also uncover whether a phone number is associated with numerous locations, which also can be a red flag.
Actions on the property side, the panel said, should be driven by the type of fraud encountered, whether it’s first-party, synthetic ID or an identity theft. Logic should be utilized, as well, such as refraining from sending a one-time passcode to a synthetic identity.
The panel encouraged operators to monitor social media for increasing fraud schemes, more of which will be borne out of agentic AI. Additionally, constant review and fine-tuning of fraud prevention measures can keep properties ahead of the game.
Lastly, panelists urged operators to maintain the perspective that a heavy majority of applicants, up to 99%, are well intentioned. Educating customers on why the checks are needed—namely, to protect their identities, as well—will help them understand the reasons for any robust measures. Effectively communicating these intentions helps to maintain trust. Just as consumers are OK with multifactor authentication from a bank, they’ll appreciate the fraud prevention efforts if they know you have their best interests in mind.
About the author:
Paul Willis is content director at LinnellTaylor Marketing in Denver.
