Rental fraud is quietly costing landlords millions, and even thorough background checks aren’t always enough to catch it. Within minutes, landlords can view a rental applicant’s credit and background history, but deceptive applications are becoming harder to spot.
The 2023-24 Pulse Survey conducted by the National Multifamily Housing Council (NMHC) found that over 70% of major apartment landlords reported an increase in fraudulent activity in the past year. They also reported that application fraud has nearly doubled since before the pandemic.
Adding to the challenge, it’s becoming harder for landlords to learn about an applicant’s criminal or eviction history. In 2023, Alameda County in California became the first in the United States to ban criminal background checks for renters, kickstarting a national trend to restrict access to criminal records.
What’s more, since 2017, the three major credit bureaus have removed civil judgments and state and federal tax liens from credit reports. That means a renter with an eviction record may still have a strong credit score, unless a landlord has won a monetary judgment and reported it through a collection agency.
With access to data diminishing and applicant fraud increasing, there are some precautions landlords should be taking to ensure they rent to good tenants.
Rental fraud takes many forms
According to NMHC, “the rise in false rental housing applications is exacerbating rental costs, fueling the housing affordability challenges facing communities across the country, and undermining the credibility of eviction data.”
As with most crime, rental fraud takes many shapes while it continues to evolve; 84.3% of the survey respondents reported seeing applicants falsifying or fabricating pay stubs, employment references, or other income documentation.
The following are the most common application frauds at this time:
- Identity theft: Scammers steal personal information, including Social Security numbers, to create false identities to apply for a lease.
- Providing fake credit reports: Applicants provide a falsified credit report with a high score and an exaggerated record of on-time payments. Property owners should always conduct their own credit and background checks through a reputable reporting company.
- False financial information: Fraudulent pay stubs or employment records are often submitted to qualify for a lease. Tenants will provide a fake employment history and ask friends or family to pose as employers to verify employment.
- Paying for rent and security deposits with fake checks: Tenants using fake check scams will provide fraudulent checks for rent, security, or a deposit to gain access to the unit without the intention of legitimately paying.
Combatting rental fraud
Armed with the tools they need to address fraud head-on, landlords and property managers can outsmart the scammers. These tools include up-to-date credit reports, background screenings, and legitimate records.
Confirm income by asking for the following documentation:
- Bank statements for at least the last two months are an excellent method of determining how much cash the applicant receives and how much they spend each month. They can also be used to ascertain income for someone whose wages are commission-only or who is self-employed.
- The Form W-2 Income Statement reports a worker’s annual wages from the previous year and provides the name of the applicant’s employer during that time and how much they were being paid, which is a good indicator of what they may earn in the current year.
- Two years of income tax returns will give a source of income that the applicant may not have mentioned. Unfortunately, like Form W-2, the tax return is a snapshot of the prior year and does not show the applicant’s current income. It is not necessary to ask for the entire return. Total income for the year appears on Form 1040, lines 1-9.
- Form 1099 is one of several IRS tax forms used to report various types of income other than wages, including salaries and tips of freelancers, real estate agents, and other independent contractors.
- Additional documentation may include a Social Security Benefits Statement, a workers’ compensation letter, or an annuity statement. Be sure to follow state laws requiring consideration of all legal income sources, including housing vouchers.
Landlords can further combat rental fraud by following these steps:
- Conduct landlord and employment verification. Current and past landlords and employers should be contacted to confirm the information given to prospective landlords. Search the employer’s contact info online and ask to be transferred to their HR department. They may charge a fee to confirm salary or request a signed rental application.
- Landlords should order a civil judgments and tax liens report, since that information has been removed from credit reports. It’s important to see if a tenant owes money to the IRS or has been sued for damages to the property or unpaid rent.
- Landlords need to run a Social Security number fraud report to determine if their applicant is using their own number or that of someone else, even a deceased person.
- Landlords should obtain a LeaseGuarantee to protect themselves against tenants who do not pay their rent or who cause property damage. With LeaseGuarantee, property owners are paid if they take the tenant to court and win a judgment against them.
- A written set of criteria should be given to every applicant to guard against litigious scammers.
- Ask your tenant screening provider if they have access to county criminal records. Some cities like New York and Los Angeles have limited the data provided in instant searches, making it unlikely to find a match, but for an additional fee, a county-specific search will uncover more details and ensure your search is accurate.
Utilizing these steps to strengthen their defenses, rental property owners can win the battle against unlawful fraudsters and scammers.
