BTR Operators Prioritize Fraud Prevention, Education

The pandemic created new opportunities for real estate scams. Here's what to watch out for.

Rental scams are as old as the landlord-renter relationship—and fraudsters are always on the lookout for new opportunities. They found one during the pandemic, when a steady stream of renters coast to coast were departing cities in search of single-family homes to rent in the suburbs and beyond.

The build-to-rent sector became a prime target for scammers, who took advantage of social distancing and remote digital walk-throughs to insert themselves into the rental process. Scammers successfully posed as operators and owners of single-family homes.

With a shortage of houses to rent, unsuspecting consumers who responded to a fake ad on Craigslist or Facebook became illegal squatters without even realizing it. The pandemic recovery is in full swing now, but build-to-rent operators of all sizes continue to be on high alert to avoid costly scam situations that can lead to lost revenue as well as potential legal expenses required to coax unauthorized renters from the premises.

In addition to keeping a close watch on their portfolios at all times—especially vacant homes—build-to-rent operators and investors can help protect brand reputation by educating potential renters about how to recognize and avoid scams before it’s too late.

Image by Maria Korneeva/iStockphoto.com

Watch out for ‘phantom’ rentals

According to the Federal Trade Commission, real estate scammers know that finding the right rental home can be hard work and that a good deal is hard to pass up. Scammers have been known to hijack actual real estate listings by changing the email address or other contact information and then placing the modified ad on a different website. The phony ad for the “phantom” rental might even use the name of the person who posted the original ad.

The FTC also warns about the “former tenant” scam. Here, the resident who has just moved out sees an opportunity to make money by subletting the house behind the operator’s back. The fraudster can create online listings and lure in potential renters with low pricing. They can provide a tour of the property using a duplicate key. In some cases, the former renter/scammer sublets the same house to several unsuspecting renters at the same time.

The FTC instructs victims of rental scams to report them to local law enforcement as well as to the FTC itself. They should also contact the website where the ad was posted.

A growing problem

“Fraud is a concerning and growing problem for owners of single-family rental homes,” said David Howard, executive director of the National Rental Home Council. “Unfortunately, the ones hurt most by the kinds of unlawful activities being encountered are innocent and unsuspecting families in search of a place to call home.”

According to Howard, the most prevalent of the scams being experienced are fraudulent online listings, property squatting and intentional misdirection of funds. While innovative technologies have made the process of finding and leasing a home much more efficient, they have also made it easier for pad actors to perpetrate fraudulent activity in the space.

“Scammers have been known to replicate legitimate rental home listings on online platforms and sites that include fraudulent contact information,” said Howard. “Renters who then contact the person or company listed are instructed to forward payment electronically as a deposit on the property. Once that happens, the ‘contact’ disappears and the renter is left without both the home and their deposit.”

Howard noted that larger owners of single-family rental homes may be better equipped to prevent fraudulent activities than the individuals and small local businesses that own the vast majority of single-family rentals in the U.S. However, any home may be a target.

Often, he observed, because renters are the target, “legitimate owners are completely unaware that their properties are involved until after the fact.” However, he added, many owners will work with the defrauded renters, “depending on the circumstances of the crime.”

NRHC has published resources for renters and owners on how to identify and prevent rental fraud. According to Howard, NRHC members are committed to developing and implementing protections for renters to safeguard their well-being. Policymakers also have a role to play in preventing rental scams.

“Currently, online platforms are not responsible for vetting the legitimacy of rental home listings and cannot be held liable if a renter is subjected to a rental scam perpetrated on their site,” explained Howard. “Clearly, NRHC supports policy measures designed to protect renters from online scams, and we are working with officials to make sure this becomes a reality.”

The National Apartment Association is also monitoring the situation, with the view that rental application fraud continues to be a sizable concern across all classes and sectors of the rental housing industry. According to Nicole Upano, NAA’s assistant vice president of housing policy and regulatory affairs, “In recent months, policymakers at all levels of government have considered enacting limitations on resident screening.”

And that is cause for concern. “It is paramount that housing providers retain the ability to screen all prospective residents to evaluate risk and ensure the long-term viability of rental communities,” Upano stressed. “Limiting screening increases risk for housing providers, their communities, residents and staff.”

Image by deepreal/iStockphoto.com

Image by deepreal/iStockphoto.com

Awareness leads to prevention

“We are always frustrated to discover that one of our homes has been used for these types of scams, which can have a devastating effect on the victims,” said Kristi DesJarlais, senior vice president of communications and public relations for Invitation Homes. “Our goal, as always, is to offer quality homes and ensure our residents have great experiences.”

Invitation Homes dedicates resources to raising awareness of and preventing potential fraud. According to DesJarlais, prospective residents are encouraged to watch out for eager requests for cash or wire payments with an emotional plea, abnormally high security deposits and no required background checks. These tips and more can be found at www.invitationhomes.com/fraudprevention.

“We also direct prospective residents to use verified channels and encourage any consumer interested in renting one of our homes to contact us directly via our website,” said DesJarlais. She noted that Invitation Homes advertises on trusted home listing sites like Zillow, Trulia and Redfin, and it doesn’t advertise on Craigslist. She added: “When Invitation Homes encounters a fraud or scam, we work with local authorities to remedy the situation and help address any prospective residents that may have been affected.”

Sharing scam prevention tools

Within the build-to-rent industry, operators are eager to share best practices. The Amherst Group suggests including signage throughout properties with information about scam prevention. It recommends including a QR code that directs prospects to the company website or leasing office to address consumer questions and validate listings, including scam prevention messaging in tour registration communications, routinely monitoring third-party websites for unauthorized listings, and reporting unauthorized listings to third-party websites for removal and to the FTC’s Internet Crime Complaint Center.

Amherst has set up a dedicated Scam Prevention site through its resident-facing platform Main Street Renewal. This page offers the following tips to help consumers recognize, report and prevent scams:

  • If you see a rental home on Craigslist or Facebook Marketplace, it is probably a scam;
  • If the price is significantly below comparable homes in the market, it is probably a scam;
  • If you are asked to take the key with you, or place the key anywhere other than the lockbox, it is a scam;
  • If you are approved for a home without a credit and background check, it is a scam;
  • If you are asked to sign a paper lease, it is a scam;
  • If you are asked to transfer money via wire or prepaid gift cards, send a money order or digital gift card, or provide funds through Zelle or a non-RentCafe payment app (such as Cash App, Venmo, PayPal, Square Cash, Apple Pay and all others), it is a scam.

Main Street Renewal further advises renters who believe they are the subject of a rental scam to stop communicating with the scammer immediately. The longer there is contact, the greater the risk. The renter should document all correspondence that has taken place with the scammer and report the scam to local law enforcement immediately.

Prevention is the best defense, but scammers are always coming up with new angles. Build-to-rent operators and renters who stay informed and share best practices will be better able to steer clear of real estate scams or spot them before it is too late.

Read the July 2023 issue of MHN.

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