Rental fraud has become more sophisticated over the past several years – but so have the tools for property owners and operators to prevent it, according to the panelists of the “Beware Fake Pay Stubs” panel at the National Apartment Association’s Apartmentalize 2024 conference. 

In the last 12 months, 93% of property professionals reported experiencing fraud, according to a survey conducted by the National Multifamily Housing Council. Seventy percent say fraud has become more frequent in the last 12 months, and 58.5% report an increase in nonpayment of rent due to fraud. “If you haven’t experienced it, it means you haven’t found it,” said Stephanie Jackson, area vice president of Atlanta-based RAM Partners.

The four most common types of rental fraud, according to the panelists, are:

• First-person fraud, where an individual falsifies part of their genuine identity in order to hide criminal convictions or other information from apartment providers.
• Third-person fraud, or the use of a full false identity to apply for an apartment.
• Identity manipulation fraud, which involves making slight changes to identifying information that application reviewers may assume are typos.
• Synthetic fraud, which accounts for 85% of fraud today, according to the panel. This involves the creation of an entirely new identity out of fictitious information. 

Another type — one that Chris Loebsack, managing principal of Charlotte, North Carolina-based law firm Loebsack & Brownlee, said he had not heard of until the day before the session — is inception fraud, an operation that establishes fake companies in order to produce and validate fake paystubs.

In today’s environment, the goal of renter fraud isn’t as much to bypass tenant screenings in order to remain in an apartment. Instead, according to Loebsack, fraudulent renters intend to move in, not pay rent, and then stay as long as possible until an eviction moves through the courts.

“Once you give them the keys, that’s when all the bad things start,” Loebsack said. “The more things you can put in their way before they get a set of keys, the more likely it is you’ll weed out some percentage of the bad guys.”

Anti-fraud shield

In a poll of attendees at the Apartmentalize session, 79% said they saw an increase in fraudulent applications between 2022 and 2023. Eighty-five percent had experienced falsified paystubs or income documentation, and 75% said false paystubs were their top issue.

To counteract paystub fraud, the panelists recommended a mix of tech solutions and trained human eyes. Payroll and bank linking tools can allow property managers to go straight to the source to verify paystubs with companies and financial institutions, and a document fraud detection program can identify indicators of fraud and flag them for users. 

Managers are advised to require both bank statements and paystubs and to keep an eye out both for signs of fake paystubs and for fraud indicators in credit history. For instance, if a social security number was issued after 2011, or has multiple credit inquiries by a single agency in a single day, the panelists recommend having the applicant physically sign an IRS form or produce a social security card.

In addition, managers were advised to do multiple ID checks throughout the renting process — during the tour, when applying and at move-in. This can ensure that the person who toured and applied is the same person that is ultimately moving in.

However, despite the best safeguards, fraudulent renters may still slip through. At this stage, the only way to remove the tenant is a court eviction — which can be a lengthy process. “There’s no court system that works fast,” Loebsack said.

To make the eviction process easier, the panelists recommend including a clause in the lease contract that names submitting false information in the application process as a violation of the lease. They also advised that even one piece of fraudulent documentation is usually sufficient as grounds to evict in a civil court. 

NMHC survey respondents reported that, on average, 23.8% of evictions were due to fraudulent applications and subsequent failure to pay rent. However, the impact of these tenants remains in the form of bad debt — an average of over $4 million per respondent per year, of which almost a quarter, on average, can be attributed to fraudulent renters.