Renter Fraud Prevention In A "Digital First" World
The shift to "digital first" leasing that started during COVID lockdowns wasn't as temporary as we may have originally thought. In reality, it's a big part of how the industry still operates today.
Since in-person touring came to a standstill, the property management industry needed to find a way to adapt. Potential renters were still in need of housing, and operators were still in need of residents.
And while part of that growth enabled wonderful innovations to take place in terms of technology, customer experiences, and flexibility, at the same time new (and more) opportunities for fraudsters appeared.
Virtual tours and online applications meant that an individual could inquire, view, apply, lease, and move into an apartment or home without ever having to interact in-person with a leasing agent or property manager.
This new way of leasing was the greatest opportunity for fraudsters in a lifetime.
But not all fraud is the same so it’s important that property managers and leasing agents understand and identify the main types of fraud they are most likely to run into when managing their properties.
Three Main Types of Fraud Property Managers Will Come Across
While there are seemingly unlimited types of fraud (renter fraud vs applicant fraud vs pet rent fraud vs income fraud, etc) possible in the rental real estate space, for the sake of this article, I'm going to focus on the three main types of fraud that a property manager is most likely to come across.
First-party fraud: This is when a person knowingly misrepresents, lies, or provides false information in order to move through the leasing process.
This can range from providing a fake name, misrepresenting the weight of their pet, inflating their income, or adjusting the dates of their employment.
Third-party fraud: This is when a fraudster steals and provides another person’s personal details without their knowledge.
They can get this information from social media profiles (birthdays, mother's maiden name, middle names, etc), public records (addresses, etc), buying from the dark web, as well as spoofing and social engineering.
Synthetic identity fraud: This is when an identity is built using a combination of real and fabricated data. There are two versions of this, and they look very different in practice.
The first is identity manipulation or first-party synthetic fraud. A real person uses their own name and date of birth but pairs it with a Social Security number that doesn't belong to them. This is often someone trying to hide bad credit history, sometimes after a credit repair company told them to use a "CPN" instead of their real SSN. They're real people gaming the system.
The second is identity fabrication or third-party synthetic fraud, sometimes also called Frankenstein fraud. A completely fake identity is created from scratch, where the name, date of birth, and SSN combination doesn't belong to any real person. These fabricated identities can have addresses, phone numbers, credit histories, and even social profiles that have been built out over months or years. This version is more commonly associated with organized fraud operations running dozens of fake profiles across multiple properties.
Both are synthetic. But the person hiding bad credit and the fraud ring running fake identities require very different detection approaches.
How To Protect Against These Types Of Fraud
Many cases of fraud can be detected early in the leasing process, before you ever run a screening report. Depending on your portfolio size, catching fraud earlier can save tens of thousands in decreased NOI, property costs, legal fees, and resident satisfaction.
Three things that actually move the needle:
Document your fraud criteria the same way you document your screening criteria. Most operators have written screening guidelines. Almost none have written fraud guidelines. If your leasing team can't point to a documented process for flagging and escalating suspected fraud, you don't have a fraud management system. You have tribal knowledge.
Verify identity before you screen. Background screening tells you about a person's history. It doesn't tell you whether the person sitting in front of you is actually that person. Identity verification and background screening are two different steps, and from my experience, working across the different layers of the screening process, the order matters.
Invest in detection tools that work upstream of the application. By the time a fraudulent applicant submits a completed application, they've already passed your easiest checkpoints. The best fraud detection happens before that point, not after.
Fraud prevention isn't a feature you buy. It's a discipline you build. And the earlier it starts in your leasing process, the less it costs you downstream.
