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June 10, 2024

What is Synthetic Identity Fraud?

Kyle Nelson
Vice President of Strategic Partnerships

If you are a busy landlord or involved in the world of property management, you need to be aware of synthetic identity fraud.

Unlike traditional identity theft, synthetic identity fraud poses a significant threat as it can lead to significant financial losses and legal complications. This blog post sheds light on synthetic identity fraud and how to protect against anyone involved in property management. 

Quick Answer: What is Synthetic Identity Fraud?

Synthetic identity fraud occurs when fraudsters create a new identity by mixing real and fake information. For example, they may use a legitimate Social Security number but combine it with a made-up name, date of birth, and street address.

Over time, these synthetic identities can develop credit histories, making them seem like legitimate people. Criminals use these synthetic identities to open new bank accounts, apply for loans, and even rent properties.

Common Uses

Synthetic identity fraud is a versatile tool for those involved in fraudulent activity, as it helps them exploit various industries to make money.

As mentioned above, synthetic identities can be used to rent apartments, lease cars or secure other rental agreements. Criminals may eventually stop paying rent or lease payments and desert the property or vehicle, leaving the owner with unpaid bills and potential damage.

Here are some other common uses:

Credit Card Fraud. Fraudsters use fake identities to apply for and get credit cards. They may use these cards responsibly to build up a decent credit history. Once the synthetic identity has a robust enough credit profile, they max out the credit limit and disappear without paying the bills.

Loan Fraud. Synthetic identities are used to take out all types of loans, including personal, auto, and even mortgages. Criminals typically default on these loans after receiving the money, leaving lenders with significant financial losses. 

Bank Account Fraud. Opening bank accounts under false identities helps fraudsters carry out a range of illicit activities, such as money laundering, check fraud, and wire fraud.

Medical Fraud. Synthetic identities can be used to obtain medical services and prescription drugs. Fraudsters may receive expensive treatments or medications and then disappear, leaving medical providers with unpaid bills.

Insurance Fraud. Using synthetic identities to obtain insurance policies allows fraudsters to file false claims. They might stage accidents or thefts to collect insurance payouts, leading to significant losses for insurance companies.

Tax Fraud. Fraudsters use synthetic identities to file false tax returns and claim refunds. This type of fraud can be challenging to detect and often results in substantial losses for tax authorities. 

How Synthetic Identities Are Created

Fraudsters typically start by getting their hands on a social security number, often from someone who doesn’t use their credit or a minor. They then create a false name, date of birth, and other personal details to create a new identity.

The synthetic identity is then used to apply for credit cards or small loans. In the beginning, these applications might be denied. However, as the synthetic identity is used more frequently, a credit history is established.

Once the synthetic identity has a strong credit history, fraudsters use it to make significant purchases, take out major loans, or rent properties. Because the identity appears legitimate, landlords are commonly deceived. Even worse, after exploiting the synthetic identity, the fraudster may abandon it, leaving property managers and landlords with unpaid bills and no real person to hold accountable.

Dangers for You and Your Business

Synthetic identity fraud can have harsh repercussions for landlords, including:

Financial Loss. When a fraudster uses a synthetic identity to rent a property, they may eventually stop paying rent and disappear into thin air, leaving the landlord with lost income and potentially significant repair costs.

Eviction Costs. Evicting a renter who uses a synthetic identity can be time-consuming and expensive. Legal fees, court costs, and the valuable time spent dealing with the eviction process add up quickly.

 Vacancy Issues. Once the fraudulent renter is evicted, the unit may remain empty while the landlord makes repairs and finds a new resident, leading to additional lost income.

How to Detect It and Protect Your Business Against It 

Property managers and landlords can take several proactive steps to identify and prevent synthetic identity fraud by taking the following steps:

Comprehensive Screening. Conduct thorough background checks on all applicants, including verifying social security numbers, checking credit reports, and confirming rental history and employment.

Cross-Verification. Double-check all provided information with multiple sources. For example, cross-check the social security number with the prospective tenant’s name and date of birth.

Look for Red Flags. Pay attention to inconsistencies in the application, like mismatched information, lack of credit history or discrepancies in identification documents.

Use Technology and Professionals. Take full advantage of advanced verification tools and services that detect synthetic identities. Technology uses algorithms and databases to identify suspicious patterns and anomalies. Consider partnering with professional tenant screening services that specialize in detecting synthetic identities.

Educate Yourself. Stay current about the latest trends and tactics in synthetic identity fraud to understand how fraudsters operate.

Monitor Often. Even after a renter has moved in, it’s crucial to continue to monitor for signs of fraud. This might include paying close attention to payment patterns and remaining alert to any unusual activity or behavior.

Public Examples and Cases of Synthetic Identity Fraud

Synthetic identity fraud is a sophisticated type of fraud on the rise. Here are some notable public examples and cases:

U.S. vs. Raul Alvarez (2017). Raul Alvarez was involved in a large-scale synthetic identity fraud operation, using fake identities to open credit card accounts and make fraudulent purchases. The scam involved creating hundreds of synthetic identities using a mix of real Social Security numbers and fictitious information.

Eustis Financial Corporation Case (2018). This significant synthetic identity fraud scheme was uncovered involving Eustis Financial Corporation. Fraudsters created synthetic identities to get credit cards and loans, resulting in millions of dollars in losses for financial institutions. It was pulled off using Social Security numbers from children or deceased individuals.

JPMorgan Chase Lawsuit (2019). JPMorgan Chase filed a lawsuit in 2019 against a group of people accused of using synthetic identities to defraud the bank. The fraudsters allegedly used fabricated identities to secure lines of credit, which were maxed out and left unpaid. The case highlighted the increasing sophistication of synthetic identity fraud and the challenges banks face in detecting it.

True Name Fraud vs. Synthetic Fraud

True name fraud and synthetic fraud are two distinct types of identity theft, each with its own characteristics and methods. We compare the two below:

True Name Fraud

True name fraud occurs when a fraudster uses someone’s real, complete identity information (like name, Social Security number, date of birth, and other personal details) without their knowledge to commit fraud. Here are some methods and ways it’s used:

  • Data Breaches
  • Phishing
  • Mail Theft
  • Skimming
  • Opening Credit Accounts
  • Making Purchases
  • Tax Fraud
  • Medical Fraud

Victims of true name fraud may suffer significant damage to their credit scores and financial reputations. They may also face substantial financial losses and legal fees to resolve the fraud, which can be time-consuming and stressful.

Synthetic Identity Fraud

Synthetic identity fraud occurs when a criminal creates a fictitious identity by combining real and fake information. This synthetic identity is used to open accounts and commit fraud. Here are some methods and ways it’s used:

  • Combining Information
  • Credit Building
  • Application Fraud
  • Card Fraud
  • Loan Fraud
  • Utility Fraud

With synthetic identity fraud, financial institutions and lenders suffer significant losses due to unpaid debts. Because they do not correspond to real individuals, synthetic identities often go undetected for long periods.

And unlike true name fraud, the immediate impact on real people might be less severe, but the long-term effects can still be substantial if the synthetic identity is linked to their Social Security number.

What to Do If You’re a Victim of Synthetic Identity Fraud

Landlords must navigate several legal considerations when dealing with synthetic identity fraud.

If you suspect synthetic identity fraud, it’s critical to report it to the relevant authorities, such as the Federal Trade Commission (FTC) and local law enforcement. This not only helps protect your interests but also aids in combating the broader issue of synthetic identity fraud.

In cases of synthetic identity fraud, take the time to consult with a legal professional to understand your options. These might include pursuing civil action against the fraudster or seeking restitution through the courts.

To Sum Up…

Synthetic identity fraud poses a significant threat to landlords, but proactive measures can lower the risks. Property managers and landlords can protect themselves and their properties by understanding how synthetic identity fraud works, using comprehensive screening processes, and staying educated about the latest trends and technologies. Ultimately, the key to preventing synthetic identity fraud and protecting your business lies in a healthy balance of education, technology, and diligence.