How to balance the costs of rental fraud versus fraud prevention

Statistics continue to show that fraud is something that nearly everyone in the multifamily industry has been or will be affected by. But how did we get to this point? 

For starters, instances of fraud skyrocketed during the pandemic. When much of the world was locked down, the leasing experienced largely moved online and, with so many people living so much of their lives on the Internet, it created an environment in which personal information could be stolen easier. While everyone was doing their best to survive the pandemic, fraud was thriving. Hear from MRI Software’s own Pat Daly on fraud and the pandemic:  

Large amounts of personal identity were stolen during the pandemic when we were forced online. It’s said that 93% of property management professionals experienced fraud over the past 12 months, and 40% saw an uptick in the frequency of fraud. And non-payment? That became over half of our bad debt because of fraud.

Now, as 93% of property managers report experiencing fraud, many are asking how fraud can be prevented and at what cost? Read on to learn how fraud gets into your community, the costs of dealing with fraud, and how to balance the costs associated with prevention.  

What is rental fraud

There are several different types of rental fraud that are the most prevalent right now, but the most common type seen today is synthetic fraud. Synthetic fraud is when an applicant creates a fake identity using personal information that was stolen from someone online. As mentioned above, the pandemic forced all kinds of people to move much of their lives into an online space. This gave fraudsters an opportunity to scam thousands of unsuspecting users, steal their data, and sell it to bad actors for fraudulent purposes.  

How does rental fraud happen? 

While there are many technological tools fraudsters can use to their advantage, the first thing they’re typically looking for is human error and weak links in the application process. The following are some of the most commons ways fraud enters a multifamily community. 

Fake pay stubs

One of the most used tools in a fraudster’s utility belt is the falsified paystub. With the increase in easy-to-use image editing software and applications, fraudsters have thrived in recent years by fabricating pay statements from alleged previous employers, sometimes out of whole cloth. One study even found that 84% of property managers had caught applicants forging paystubs, employment records, or other income documentation.  

CPNs

A CPN (Credit Privacy Number) is frequently advertised to high-risk individuals as a nine-digit number that can be used in lieu of a Social Security Number (SSN) when filling out applications for a loan, lease, or any other purchase that requires a credit check. According to companies that provide these numbers, buying a CPN is akin to buying a “clean slate” for your credit history. In reality, CPNs can be linked to real SSNs that have been exposed in data breaches and made accessible through an online black market. 

Falsified offer letters

Another document that bad actors can fake to enter a community under false pretenses is an offer letter. Especially common during the “Great Resignation,” falsified offer letters became a helpful tool for fraudsters as their formatting often makes them hard to verify without special technology. 

Vendor impersonation

Sometimes, fraud can slip in through venues outside the application process. Such is the case with vendor scams, where a scammer can use the tactic of social engineering, which is when a person with malicious intent convinces you that he or she is someone you can trust because they are providing information that seems legitimate. One such scam involves a caller claiming to be one of your trusted vendors asking for an immediate deposit so they can avoid some time-sensitive consequence.  

What does rental fraud cost?

When it comes to the cost of resolving an incident of rental fraud, there’s no denying that costs can add up fast. What many don’t realize, however, is that a single incident of fraud can have impacts on your business that are often overlooked.  

Financial costs

If a fraudster gets through your leasing process and makes their way into the community, you could end up with $5,000-$10,000 in bad debt. Furthermore, if even one fraudster manages to get into your community, legal action is virtually the only way to address the problem. 

Time wasted

If you find yourself in a situation where you’re having to evict a fraudulent tenant, or even deal with an unqualified resident who got into your community on false pretenses, you’ve already wasted time on nurturing this resident through the lead to lease process. All those hours, weeks, or even months you spent communicating back and forth with this person will have been used up and diverted resources and attention away from more qualified prospects. 

Damage to your reputation

One of the biggest consequences of fraud can be the legal action your business takes in evicting a fraudster. Taking legal action not only comes with a financial burden, but it can also lead to a soured reputation in the eyes of residents and prospects. This is especially true if your community is unfortunate enough to end up in the local news.  

How do you detect rental fraud?

There are several prevention methods that can help you detect and prevent rental fraud from entering your property. These methods can help you identify fraud before it slips into your community and utilizing these measures can help keep your multifamily property safe. 

Training

One of the most important deterrents is training. The more you know about fraud, the more you can prevent it. For many organizations that are already struggling to deal with high costs in the industry, sending an onsite team to a special training session on fraud prevention may not be a viable option, but the costs of applicable training are often never that high. 

Training starts with one person knowing what to look out for. For example, all it takes to keep an onsite team member from falling prey to a social engineering scam is a healthy skepticism and awareness of anyone claiming to need money immediately. Similarly, one team member can decide to do the research and become the go-to expert on fraud prevention in the office, then return to their larger teams and share what they’ve learned.  

Resident screening and verification tools

Some forms of fraud are too advanced for the human eye to detect. No matter how much training someone has, there’s always a chance for human error when trying to detect falsified paystubs, offer letters, or other records of employment. In these cases, software solutions like resident screening tools, automated income verification, and ID verification can help keep you and your community safe.  

Regardless of what type of strategy works best for your business, dealing with even one incident of fraud will always cost more than any prevention measure you could implement. Your business’s resources and reputation are too important to gamble. Learn more about rental fraud versus fraud prevention costs and how you can bolster your fraud prevention measures with the right training and technology.