Rental Red Flags: Preventing Fraud In Property Management

Written by Landlord Property Management Magazine on . Posted in Blog

Fraud prevention is always a priority in property management, but it’s an even bigger issue now that many (or most) interactions occur online. Plus, fraud is more common than some people realize. According to Kent Simpson, industry principal of screening and fraud solutions at Yardi, about 1-4% of applicants provide fraudulent identification and 4-10% submit fraudulent proof of income.

“One slip can waste your time, money and damage your reputation. The average eviction costs $7,500 per instance,” he said.

Fraud prevention: you only know what you know

So how do you know if someone is who they say they are? What steps do you need to take to prevent identity and income fraud? In many cases, simply presenting automated anti-fraud tech in the online leasing workflow is enough to give pause to would-be fraudsters. Technology helps prevent identity and income fraud by letting you answer three important questions about your renters:

  • Who exactly are you renting to?
  • Can they pay their rent?
  • Do they have a track record of meeting financial obligations?

To help you answer those questions, we’ll examine the common methods of fraud, delve into the best prevention techniques, and share tips from a Yardi Breeze client who specializes in this area.

4 ways fraud is commonly committed

  1. An applicant poses as someone else (e.g., a family member poses as the “resident” to help the true resident with bad credit)
  2. A new, false identity/identification is presented
  3. Fake income documents are presented
  4. A real identity is used, but some details are changed to help avoid detection

The fraud prevention techniques we share below make it easy to address these common fraud techniques.

Preventing identity fraud

VERIFY GOVERNMENT ID/DOCUMENT VERIFICATIONS

When used alongside a biometric selfie match, these classic means of identification are reliable indicators that someone is who they say they are.

Pros: Everyone has basic identification, and biometric matching technology is reliable and widespread.

Cons: Matching an ID card to a face requires the applicant to have and use a smartphone or tablet. Plus, not everyone is great at taking and uploading photos.

CHECK CREDIT BUREAU FRAUD WARNINGS

Credit bureaus offer notifications and warnings about recent fraud types and instances, so you can stay on the lookout when screening applicants.

Pros: Each bureau provides alerts related to identity. For example, an initial fraud alert lets you know that the applicant’s identity may have been stolen. Keep in mind that from such an alert, the applicant could be the victim or the perpetrator.

Cons: Messages can be ambiguous, and you may need to know where to look to find relevant messages.

BANK ACCOUNT LINKING/OPEN BANKING

Open banking lets financial data be shared between banks and third-party services. Banks have traditionally kept financial data within their own protected systems for fear of risking sensitive financial customer data, but open banking allows customers to connect their bank to additional services through other applications. For example, open banking allows you to use your banking credentials on your brokerage app to view both accounts on one dashboard.

Pros: Current ID requirements to open a bank account are rigorous, so you can have high confidence in the accuracy of the applicant’s information.

Cons: You only know that someone has the correct bank credentials. This method does not verify income, and some consumers are not yet comfortable with this new technology.

Preventing income fraud

DOCUMENT VERIFICATION

Matching official documents, such as pay stubs, to an individual is straightforward and reliable. It’s been done successfully for many years.

Pros: Everyone gets some sort of statement that can be used to verify income.

Cons: This paper-based method of income verification is tedious for renters and is quickly being outpaced from a tech perspective.

PAYROLL DATABASES

Leverage national payroll databases and automate the income verification process, increasing accuracy and saving applicants time.

Pros: Property managers get instant results, zero friction and high confidence.

Cons: Top sources only cover about 50% of the renter population (which is actually high, but it’s not perfect).

PAYROLL ACCOUNT LINKING

You can go straight to the source to check someone’s income and employment records.

Pros: Ensure accuracy by extracting pay stubs from first-party sources (e.g., ADP).

Cons: This method doesn’t cover self-employed individuals, and many people don’t know their login credentials.

BANK ACCOUNT LINKING/OPEN BANKING

Open banking works for income verification as well as identity verification, which means you get both forms of fraud prevention with one technique.

Pros: Open banking covers all income sources.

Cons: As mentioned earlier, some consumers are not yet comfortable with this new technology.

Additional ways to prevent fraud with tech

The 2020 NMHC/Kingsley Apartment Resident Preferences Report revealed that 73% of leases are signed electronically. It’s unlikely that society will go back to the days of strictly in-person leasing, especially when safeguards exist to make online lease executions safe and efficient.

According to Yardi Breeze client Paul Vengilio, it’s important to keep technology on your side if you don’t want to get bamboozled by fraudsters. After all, technology is making it easier for forgers to create authentic-looking documents.

Paul is passionate about the tech that helps keep his property management business and renters safe. He realizes that technology increases the risk of fraud, but it also provides the solution. “Yardi Breeze has really opened up our eyes, giving us the ability to do all kinds of background checks and identity verifications,” he said.

Here are Paul’s tips for making sure you don’t fall victim to the latest fraud techniques.

TIP 1: MAKE A PLAN

It goes without saying that you need to know your renters are who they say they are. No matter the size of your portfolio, the safety and security of your renters comes first. This is both a practical business concern and an ethical obligation to your community.

That said, small property management businesses and IROs can be disproportionately affected by the consequences of renter fraud. It’s harder for them to cover losses in rent, legal fees, the eviction process, etc. So even if you run a small, independently operated business, make sure you have top-of-the-line screening in place.

TIP 2: MAKE MIDDLE NAMES MANDATORY ON ALL FORMS

Some people alter their data to prevent fraud detection. The middle name or initial is an easy way to catch this. Always ask applicants to provide their full legal name.

TIP 3: REVIEW CREDIT BUREAU FRAUD ALERTS

Leasing staff can miss fraud warnings on a credit report. When an alert appears, this review pauses the screening workflow until an authorized employee reviews and approves it. For instance, if a social security number is flagged, you’ll have the opportunity to pause the approval process until the applicant can provide a copy of their social security card.

Fraud prevention solutions from Yardi Breeze

In terms of identity verification, Yardi Breeze users have the option to add ScreeningWorks Pro to their online leasing workflow. It seamlessly automates screening during the application process and provides accurate results in less than a minute. If basic screening isn’t enough, we also offer ID Verify, a sophisticated solution that uses computer vision and artificial intelligence to automatically classify, extract and authenticate ID documents in seconds.

In terms of income verification, we offer a specialized module that becomes part of the ScreeningWorks Pro solution. Income Verification is fast, accurate and able to access 350+ million records from over 80% of Fortune 500 companies and federal employers.

Final words of wisdom

Staying a step ahead of fraudsters is simple but not easy. To prevent fraud at your properties, you must make safety and security part of your company culture. You need trusted tools that attack fraud from different angles including criminal history, identification, financial records and employment history. 

You can’t stay up to date on the latest technologies on your own, so be sure to use a known, reliable fraud prevention service. If you’re already a Breeze or Breeze Premier user, protecting your community is easy when you use our latest solutions: ScreeningWorks Pro with Income Verification and ID Verify.

Max Glassburg is a senior marketing writer at Yardi. He is usually found writing for Yardi Breeze and especially enjoys connecting with clients and sharing their successes with the real estate community. In his spare time, he is probably working it on the guitar.