You are reading: Tenant Application Fraud Statistics To Know For 2023
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Listen up, property managers – we need to talk about tenant fraud. It’s a sneaky, underhanded tactic that can leave you with empty pockets, a headache, and a whole lot of legal trouble. And the worst part? It’s more common than you might think.
From fake identities to falsified information, these fraudsters are skilled at pulling a fast one on managers nationwide. This blog post will dive into tenant fraud statistics, show you how to detect and prevent it, and explain why staying vigilant is crucial in today’s rental market. Let’s dive in!
What, Exactly, Is Rental Application Fraud?
In short, it’s intentionally lying on a rental application. It’s one thing to make a mistake or forget a detail, but clear misrepresentation on a rental application is fraud. And it’s not just professional fraudsters taking advantage. The availability of photo editing software, high-quality digital cameras, and personal scanning devices is tempting your average applicant to want to fib a bit here and there. The intent makes this fraud, no matter how small it may seem.
Application fraud is more prevalent than you might think, especially in the world of online applications. Take a look at these common Google search trends. These users are high numbers, seeking information on how to forge documents in one way or another:
“Penalty for altering a notarized document”
“Can you alter a scanned document?”
“How to forge a notarized document”
“How to commit credit card fraud”
“How to commit fraud online”
“Can you lie on a rental application?”
“Lying on rental application felony”
“Penalty for lying on a rental application in California”
Does this application fraud impact the rental industry? You bet it does. These high-volume search phrases imply that while there is a bit of hesitation regarding the consequences of being caught, the intent to commit rental application fraud is there.
The COVID-19 Impact on Fraud
By now, you can infer that rental application fraud is on the rise. The effects of the COVID-19 pandemic are still felt throughout the industry, too. As a result of the initial spike in unemployment during the middle months of 2020, desperate renters were looking for a way to get approved for the apartments they wanted. They easily purchased fake pay stubs, credit scores, social security numbers, and bank account statements online to qualify for apartments they otherwise wouldn’t have been able to lease.
Some even went so far as to falsify background checks and provide fake reference contact information to hide possible criminal activity or sensitive information that would disqualify them as potential tenants.
The result was a doubling of fraudulent applications received by property managers, from 15% in February 2020 to 29% just six months later. In addition, 85% of landlords reported being victims of rental fraud during this period, up from 66% just one year earlier.
Fraudsters are getting smarter, which means property managers have a new game to play. Before the pandemic, property managers reported that they detected 90% of fraudulently altered applications, but now, they only catch 75%.
What Does Fraud Look Like In 2023?
Businesses and economists are predicting an economic downturn throughout 2023. Moreover, they’ve identified the warning signs of an outright recession as the worst-case scenario.
If we look at history as a guide, fraud rates are all but guaranteed to explode in 2023. At the peak of the Great Recession in 2009, the FBI’s Internet Crime Complaint Center recorded a 22.3% increase in online crime reports from the previous year. Just as property managers saw an increase in housing application frauds at the beginning of the pandemic, the number of FBI online crime complaints increased by 69% between 2019 and 2020.
This impending increase in fraud and bogus transactions has put the fraud prevention industry on high alert. Under current conditions, experts predict that “fraud will snowball in 2023.”
Implications For Multifamily
Given the increasing prevalence of online listings, leasing, and self-guided tours, it’s only logical to expect similarly high fraud rates in the multifamily sector as the economy takes an adverse turn.
But while leasing application fraud will increase the number of scams originating outside apartment managers’ walls in 2023, an even more troubling source of fraud could come from within. The most recent annual report from the Association of Certified Fraud Examiners concluded that occupational fraud, in which an employee, manager, or executive deceives their employer, is the world’s costliest and most common financial crime.
In addition, the real estate industry recorded the highest median loss due to occupational fraud in any sector, at $435,000. To top it off, employees in operational units—in multifamily, i.e., leasing and operations staff—accounted for the largest cohort of internal fraud sources.
A leasing associate whose overall compensation is tied to new leases may feel more tempted to succumb to similar temptations if rents fall in 2023 and commissions decline. After all, how hard would it be to overlook a questionable pay stub or bank statement when offered $250 to greenlight an otherwise compelling lease application? The opportunity, incentive, and likelihood to do so will only increase as the economy goes south.
While the challenges of rising application fraud in 2023 are clear, property managers can take steps to level the playing field. A robust tenant screening process is one of the best ways to combat these issues. Not only will it provide you with peace of mind, but it can also save you money, time, and stress down the road.
- Credit check
- Background check, including criminal and eviction records
- Employment verification
- ID verification
Online tenant screening can still come with the pesky downside of fraudulent documents. Thankfully, Snappt provides a solution. By detecting falsified financial documents on rental applications, we can reduce potential bad debt and evictions by 51%. We’ve got your back, so you can rest easy knowing bad tenants won’t infiltrate your property. Plus, it only takes minutes to upload and certify digital documentation. Say goodbye to the endless hours of vetting applications!
Lastly, here are some other general tips to help protect your rental property business:
- Don’t accept cashier’s checks or wire transfers as payment for the application fee, first month’s rent, or security deposit. This will likely result in fraud (and losing your security deposit)
- Raise the bar for applicants by asking for two months of pay stubs or bank statements, along with an application
- Pick up the phone and call employers upfront to make sure the applicant is working where they say they are
- Pay your team of real estate agents a livable wage and give them “real jobs-like” benefits, such as healthcare and 401(k) plans, so they may have more to lose if they get involved with rent scammers
- Incentivize your team to prioritize legitimate applications by tying future bonuses to a rental property’s on-time rent payment score, not just new leases
To Sum Up…
An increase in these rental scams is almost inevitable in 2023. By preparing for this and getting your team involved in the fight early, you, as a property manager, can ensure you don’t get swept up in the coming tide of fraud.