How to Combat the Apartment Industry’s Uptick in Fraud

How to Combat the Apartment Industry’s Uptick in Fraud

An increasingly digital world invites more fraud and how to combat the apartment industry’s uptick in fraud has become a primary concern.

By Paul Willis

It’s become one of the most striking—and most unwelcome—trends in multifamily rentals.

Over the past couple of years, and especially since the start of the pandemic, apartment operators say fake pay stubs, “synthetic” IDs and other falsified documents have become all too common in the leasing process. While fraud has always existed in the apartment world, industry professionals agree that it has never before elevated to its current levels.

“It’s insane,” said Nikki Chambers, director of systems and training for Hanover Company. “I’ll have five fraudulent applications at one property in just one week. It’s crazy just how much more fraud there is in the market. It used to be isolated to particular submarkets and now, just like how crime has no zip code, it’s the same thing with fraud. It’s not isolated to any area, submarket, region or even a product type.”

A recent Entrata survey found that 55 percent of respondents have been experiencing fraudulent attempts every few months with 15 percent experiencing multiple fraudulent attempts every month. The pandemic has exacerbated the fraud trend, as Entrata data shows that identity-theft reports are up over 2,000 percent since the onset of the pandemic. Perhaps more telling is that 5 percent of applicants among the company’s clients could not be approved due to a lack of verifiable identification, which indicates that one of every 20 potential lessees is aiming to circumvent the system.

“With the average fraud loss at about $3,500 per case, it can be extremely costly, particularly with multiple instances,” said Kelly Canepa, senior vice president of product for Entrata. “That’s why operators are seeking advanced-screening measures that diagnose potential fraud early in the process and ensure that preventative best practices are in place.”

While fraud prevention used to be a background priority in the industry, it has risen to the forefront as a primary concern. Industry experts recently discussed the rising fraud problem, including innovative tactics by deceitful applicants and ways to combat the escalating trend.

Types Of Apartment Industry Fraud

Fake pay stubs, designed to inflate one’s actual earnings, are so prominent that websites are dedicated to them. But that fraud tactic seems a bit old-school compared to some of the new-age types being introduced. Identity theft is becoming more sophisticated, as individuals are using the identities of children, missing persons and deceased individuals—a tactic known as synthetic ID fraud.

This occurs when parts of real identities—such as Social Security numbers, address and driver’s license information—are combined with false information. This means a background check can still pass on some occasions.

“There has been an enormous uptick in all types of applicant fraud,” said Shawaun Alexander, vice president of operations software and systems for Bozzuto. “It’s actually become one of our primary focus areas, particularly since the effects of the pandemic still loom over occupancy and retention rates.”

Fraudsters are becoming more sophisticated. They often use these forms of fake information and false identities to get into an apartment community, then skip out after a few months when it’s apparent that they cannot pay. Oftentimes they escape with no repercussions, because their identity was false to begin with. And the tactics they deploy continue to evolve. They’ll even use outlets that sell identities on the black market.

“False pay stubs used to be all that we’d see,” Chambers said. “Now they are the least of our worries. We’re more worried about the actual identity of someone else being stolen.”

How To Combat The Apartment Industry Fraud Trend

An increasingly digital world invites more fraud, whether through ID theft, innovative phishing scams or other cyber-related activity. Operators tend to agree that fraud has become too complicated and complex to combat on their own. They need help in the form of technology, including intuitive tools to authenticate identity, verify bank account information and substantiate the overall suitability of a potential renter.

“When these solutions are in place, they enable apartment communities to make accurate risk assessments of all their lease applicants,” said Chris Ryan, Experian’s fraud and identity go-to-market lead for North America.

Alexander noted that in addition to utilizing its standard screening provider, Bozzuto utilizes a combination of ID verification and document verification software. But even with all the screening tools in place, she says the manual review process should not be abandoned. For instance, a Bozzuto internal team recently short-circuited approximately 200 potential fraudulent applicants at one community.

“The big goal is to find a full-house solution that doesn’t disrupt the application process or create hurdles for valid renters or your site teams,” Alexander said. “One that hits the key checkpoints of screening, ID and document verification. Many tech platforms hit one of those but aren’t built into the process, so fraudulent applicants can often bypass some of the checkpoints.”

Bozzuto’s primary objective after uncovering a fraudulent applicant, Alexander said, is to ensure the information surrounding fraudulent applicants is transparent across the portfolio.

Hanover Company also uses a variety of tools, including a product to scan driver’s licenses and several third-party verification services. Chambers noted that an ID verification platform utilized by Hanover has been the most successful in flagging potentially fraudulent items at various checkpoints in the process.

“Don’t think that just because you’re in a submarket that historically has not had a problem—or because you have a superior product type or a stellar onsite team with tried-and-true industry professionals—that something cannot sneak past you,” Chambers said. “Technology might not be the only answer, but it’s certainly part of the equation. At this point in the industry life cycle, you have to have some sort of technology checkpoint.”

Industry recommendations

While fraud prevention is key, industry experts agree that any prevention methods should not intrude on the experience of good renters. On the flipside of fraud prevention, Bozzuto uses a credit-reporting agency for positive rent recording. Reputable residents making payments each month receive the benefit of possibly increasing their credit score and strengthening their rental-history profile.

“We have to make sure our teams have the tools—systems, technologies and procedures—that enable them to weed out the fraudulent applicants and create the best possible experience for the qualified applicants,” Alexander said.

Operators agree that augmenting tech with manual practices is a solid tactic, because instances exist when tech won’t catch everything. Chambers said to remain diligent and not fall into the trap of thinking that you have “an amazing manager and she’ll catch everything.”

“Criminals are getting smarter by the day,” Chambers said. “If people used their insight into criminal activity for good instead of evil, the world would truly be a better place.”

In a hypercompetitive industry, it’s not natural to share information. But many believe exceptions can be made when it comes to preventing apartment industry fraud.

“I think it’s important as leaders that we work together to really dig into how prominently our industry is being affected by fraud and how drastically it has increased over the last few years,” Alexander said.

About the author:

Paul Willis is a content manager for LinnellTaylor Marketing.

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