Meet us at Apartmentalize. Win a Trip to Hawaii! Learn More Meet us at Apartmentalize. Win a Trip to Hawaii! Learn More Meet us at Apartmentalize. Win a Trip to Hawaii! Learn More Meet us at Apartmentalize. Win a Trip to Hawaii! Learn More

You are reading: The Hidden Threat: Inception Fraud and Its Impact on the Multifamily Industry

May 20, 2024

The Hidden Threat: Inception Fraud and Its Impact on the Multifamily Industry

Daniel Berlind

Fraud is a rampant issue in the multifamily industry. From fake IDs to doctored bank statements, it can be a challenge for property managers to keep up with the devious tactics used by fraudsters.

Recently, a new type of fraud has emerged known as “inception fraud.” This occurs when an applicant uses a real pay stub from a real company, even though they don’t actually work there. As a result, the pay stub does not get flagged as fraudulent by traditional screening techniques, as it is a verifiable company and paystub. In reality, they are not employed by the company and do not receive a salary from them. This type of fraud can easily slip through the cracks during the application process if not thoroughly vetted.

So what can be done about inception fraud, and how can property managers better protect themselves? Read on to find out!

What is inception fraud?

Recently, our Fraud Forensics team has uncovered a new type of fraud we call Inception Fraud. Here’s how it works:

  1. First, the fraudster contacts an Inception Fraud Company (IFC) through various social media platforms (Reddit, TikTok, Instagram, etc.)
  2. The fraudster sends the IFC the amount of money that they want to make along with the IFC’s fees.
  3. The IFC uses its legitimate LLC to create a “real” pay stub for the fraudster. This results in a real document and a matching bank statement (and payroll tax fraud)
  4. The fraudster now has real documents and proof of funds in their account to pass traditional fraud detection and bank-linking technologies.

How big is the problem?

Many property managers are aware of the increasing prevalence of fraud at their properties. However, they may lack insight into the diverse methods used to commit fraud. Until recently, they had several tools at their disposal for protection. While bank linking, document fraud detection, and OCR serve their purpose, each is adept at apprehending fraudulent applicants.

However, with inception fraud, bad actors now have the ability to bypass all known types of fraud detection. What’s worse, the type of fraudster resorting to inception fraud is likely to be the most malicious fraudster out there.

Without a comprehensive fraud detection process in place, property managers simply can’t grasp the effects fraud is having on their properties. It’s crucial to note that this isn’t a static problem. It’s evolving quickly and as such, solutions will need to evolve with it. Change cycles will get shorter and shorter as technology advances and fraudsters become more sophisticated. The most effective plan will involve a fraud detection company that can keep up with these changes and is equipped to handle them.

Fraud detection vs. inception fraud

Traditional methods of fraud detection won’t hold up against inception fraud. Here’s why.

Bank linking

Bank linking works by connecting to the applicant’s bank account to verify their income. Because it checks for an income source for a set number of months, a fraudster could simply say: “I recently accepted a new job, but you can see they’ve already been paying me for a month.” Applicants are also not required to consent to bank linking, so they may opt out, avoiding the process altogether.

Result: inception fraud beats bank-linking

Employment verification

Employment verification is often used to confirm that an applicant works for the company listed on their application by checking a database. First, this tool checks the LLC name and confirms that it’s a legitimate company in good standing. Then, it calls the “employer,” who verifies that that fraudster does indeed “work” at their company.

Result: inception fraud beats employment verification

Document fraud detection

This method checks that a document is from a known source and has not undergone any edits. Often powered by AI, this technology can analyze the document and check for alterations and discrepancies. In this case, the documents come up clean since they are from a real company – the income documents themselves have not been altered. It then verifies that the amounts on the pay stub match the bank statement deposits

Result: inception fraud beats document fraud detection

Optical Character Recognition (OCR)

Optical Character Recognition (OCR), or text recognition, is a transformative technology that extracts and repurposes data from diverse sources like scanned documents, images, and image-only PDFs. This advanced software discerns individual letters in an image, transforming them into coherent words and arranging them into meaningful sentences. Consequently, users can effortlessly access and modify the original content. In essence, OCR verifies whether the document has undergone any visual alterations.

The first step of OCR is to check the documents and determine that both the bank statements and pay stubs are real (which they technically are) and have no visual edits. Then it verifies that the amounts on the pay stub match with the bank statement deposits.

Result: inception fraud beats OCR


The good news is there is one solution on the market that can catch this type of fraud. Where bank linking, employment verification, document fraud detection, and OCR fall down, Snappt is there to pick up the slack.

At Snappt, we run all checks that other companies would run, with the same result as competitors. In this case, inception fraud would still pass phase one detection. Then, we run an additional check against our proprietary Fraud Forensics database, with a list of hundreds of known fraudulent sources found on Reddit, TikTok, etc.

Result: Snappt stops inception fraud

Importance of a multi-layered fraud process

Tactics used by fraudsters change rapidly. In order to stay ahead of them, property managers must invest in a multi-layer fraud approach. This means using a combination of the aforementioned strategies: bank linking, employment verification, document fraud detection, and OCR technology. However, even with these measures in place, fraudsters can still find ways to slip through the cracks. You need to work with a fraud detection company that can take a proactive approach to tackling these issues.

This is where Snappt comes in. Our platform offers an additional layer of protection against fraudulent activity through our Fraud Forensics team. This team spends their days researching the tools and methodology fraudsters wield and uses that knowledge to improve our system and stay ahead of emerging threats.

When property managers use Snappt, they can have peace of mind knowing that they are covered from all angles. Whether through traditional methods or more sophisticated tactics like inception fraud, we have the tools and technology to detect and prevent it.

Ready to protect your property from fraud? Book a demo with us! 

Ready to protect your properties?

Chat with our sales team to learn about our comprehensive fraud solution

Let’s Talk