Do Not Fall Victim to Renter Fraud

November 10, 2022

Covered Call Strategy

Last month, federal agents 35-year arrested Latoya Williams at her home in New York City and charged her with a crime that’s likely to keep any apartment operator up at night.

Since at least 2020, Williams ran a scam where she used fake driver’s licenses, bank statements and tax documents to rent luxury apartments around New York City, according to The New York Times. She then leased those apartments to gang members who may not have been able to pass background checks on their own, according to prosecutors.

While most cases of applicant fraud don’t involve stolen identities being used to rent apartments to gangsters, that doesn’t make it any less of a growing concern for operators. Eighty-five percent of apartment property managers feel consumers are becoming more comfortable committing application fraud, according to the 2022 State of Apartment Tenant Screening Survey from Snappt, a Los Angeles-based company that can put U.S. financial documents through a fraud detection platform.

“It could be someone who wouldn’t normally qualify, and they’ve gotten a false identity just to be able to rent the apartment,” said Nicole Upano, assistant vice president of housing policy and regulatory affairs for the National Apartment Association. “But it could extend to something more egregious, like a full-on criminal enterprise that is either happening in the apartment or they’re using it for financial fraud.”

For apartment companies, application fraud doesn’t just carry reputation risk if their property ends up in news reports for being the site of illegal activity. It can also mean wasted man-hours and thousands of dollars of lost revenue.

A Growing Problem

Phony application documents have always been an issue, but many operators say it got a lot worse during the COVID-19 pandemic when renters didn’t need to interact face to face with a leasing consultant to secure an apartment.

“That really proliferated right at the height of the pandemic and continued through last year,” said Diane Batayeh, CEO of Southfield, Michigan-based apartment manager Village Green. “It has now leveled off some.”

The pandemic-related eviction moratoriums around the country that lasted from 2020 into 2022 have also played a role in the rise of phony applications. “During the eviction moratorium, that placed even more pressure on managers and owners to ensure that the applicant could afford the rent,” said Snappt CEO Daniel Berlind. “If they decided not to pay, there was no recourse. So we saw that fraud literally doubled during the pandemic.”

The tools to commit fraud also became more prevalent. Snappt estimates that 11 million fraudulent rental applications were submitted last year in the U.S. Out of about 40,000 and 50,000 applicants it reviews nationwide, about 10% are falsifying their documents, according to Berlind.

“A few years ago, it was really challenging to edit an existing document or create one from the ground up,” Berlind said. “Four, five or six years ago, a leasing team with the human eye and some phone calls could probably do as good of a job [of detecting fraud]. But these days with PDF editors and photo editors, fraud is completely undetectable by the human eye.”

Different types of fraud

Identity fraud doesn’t come in one simple package. In some cases, fraudsters are using a real person’s identity to get into an apartment. In others, they may change one digit in their social security number to fake their identification.

Fakers could also doctor pay stubs to inflate their earnings to qualify for an apartment. Snappt found that 15.6% of pay stubs it scanned were fraudulent while 4.2% of bank statements were phony. “A bank statement is a much more complicated document,” Berlind said. “It has a lot more numbers on it and there are backgrounds and colors and there’s obviously the transaction history.”

The cities with the most application fraud

City Fraud Rate
Atlanta 17.9%
Houston 16.2%
Dallas/Fort Worth 13.2%
Charlotte 11.7%
Phoenix 11.2%
Los Angeles 10.8%
Tampa/St. Petersburg 10.4%
Miami 10.0%
St. Louis 9.5%
Minneapolis/St. Paul 9.2%

SOURCE: Snappt

Fraudsters might be buying fake or stolen identities on the internet and using them to create a new persona. “Fraud happens on both the income side and the identity side,” said Mike Gomes, chief experience officer at Atlanta-based owner and manager Cortland.

The motivations to commit fraud also span the spectrum — from people simply living beyond their means when the cost to rent is rising to looking for a place to commit crimes.

“It extends to potentially criminal activity on the property, whether that’s drug-related or something else,” Upano said. “Unfortunately, sex trafficking is sometimes associated with this type of fraud.”

Real costs

It’s ideal to stop people from committing fraud before they sign a lease, but even doing that comes with a cost. Still, it’s better than the alternative.

“Denial rates end up being good for the business,” Gomes said. “We spent time touring that individual and going through the application process. So we lose man-hours or productivity, but, in the end, if we get to that person… then that’s a good thing.”

It’s not hard for a person to doctor a pay stub or bank statement or buy fake ones online. When these renters move into apartments and can’t pay, it can eventually lead to eviction, which costs an average of $7,500 each, according to Snappt.

Days the unit is vacant and lost rent increases also add up. What’s more, it’s not always easy to get the fraudsters out of apartments, according to Debi Wherry, senior vice president of operations for Memphis-based apartment owner and manager Fogelman Properties, which also saw fraud increase in the past couple of years.

“This [the uptick in fraudulent applications] has led to a higher rate of delinquency and unfortunately, with COVID and the court system being as backed up as it is, this allows the unqualified resident to stay put longer than in the past,” Wherry said.