Staying Ahead of Rising Rental Fraud

Fraudsters are not only attacking unsuspecting homebuyers and owners–trying to steal their down payments, closing funds and even the titles to their properties–but they’re also going after multifamily property managers. And they’re doing so with “an increasing sophistication,” according to a new report from Snappt.

Among other techniques, scam artists are using specialized software to create fake documents that appear legitimate, and they’re editing existing documents to insert false information. As a result, the fraud detection company warns, “traditional screening methods and visual inspections are no longer enough” to catch the culprits.

If there is any good news in the report, Snappt found that the rate of fraud in the multifamily sector fell last year, if only slightly, from 7.9 percent in 2023 to 6.4 percent in 2024. Total bad debt avoidance grew from $142.8 million to $156.7 million.

However, some markets didn’t fair well at all. Memphis, with a fraud rate of double the national average, remained the market where scams were the most prevalent. And the rates in Atlanta and Houston were four points higher than average.

Overall, the report says the nationwide improvement likely reflects the industry-wide adoption of better fraud prevention and detection strategies. But while it calls the decline in fraud rates “a promising sign,” it says it doesn’t mean the risk has disappeared.

Indeed, tactics are constantly involving. The increased demand for rental units “typically leads to an increased risk for fraud as applicants may be more inclined to exaggerate their incomes or falsify their rental histories to beat out the competition.”

Take the creation of fake documents, for example. By using specialized PDF software, the crooks are able to produce pay stubs and bank statements that are “nearly impossible” to discern from the real things with a visual inspection.

And by editing real documents, the bad guys are able to insert false information to inflate their incomes or change their employment details. Text insertions are “particularly dangerous because the alterations are subtle and designed to pass unnoticed,” the report says.

Fraud as a business

Going forward, Snappt says, multifamily operators will continue to face increasingly sophisticated fraud schemes. One scheme that has begun to emerge is a “particularly devious tactic” the report calls inception fraud. It involves an applicant who uses a real pay stub from a real company, even though the applicant does not really exist as an employee of that company.

Another “concerning trend” is the rise of fraud-as-a-service in which the scammers offer their tools to others, essentially turning fraud into a business. Using advanced technology, these services can include fakes IDs, financial statements, credit reports and even rental references.

Fraudsters also are using fake information to create a completely new IDs for people who can then bypass background checks to hide poor financial histories and gain access to apartments.   

Snappt says managers can stay ahead of the game by taking a number of steps, including staying informed about the latest trends and tactics, proactively enhancing their securing measures and implementing a multilayer approach that combines traditional screening methods with advanced detection technology.

Meanwhile, here are a couple of other interesting tidbits from the 2024 Fraud Report:

• The most fraudulent applications are submitted mid-week on Wednesdays; the least-popular day is Sunday. 
• March has the highest rate of fraud, followed closely by November. The lowest rates are in May and July, but fraud still occurs in those months at an average rate of 4.2 percent.

Lew Sichelman is a syndicated housing reporter and an MHN columnist.