Rental fraud is growing, costing landlords thousands, a new survey from Forrester Consulting and TransUnion finds. The majority of property management companies recently surveyed say they’ve been affected by rental fraud, but they lack the resources to combat it.
“Working closely with property management companies for the last few decades, it was apparent to us that the prevalence of fraud was rising in the rental industry,” says Mike Doherty, senior vice president in TransUnion’s rental screening business. “In the last two years, virtually all of the property managers surveyed have experienced fraud, and the research highlights that this is a costly problem from both a fiscal and reputational standpoint.”
The growth of online rental applications may be making more property management companies’ vulnerable to fraud, the report notes.
The report highlights some of the most common forms of rental fraud, including:
Synthetic fraud: An “applicant” applies under a made-up identity and once approved, the fraudster has access to an address for the purpose of establishing credit. The scammer then runs up high balances or maxes out credit cards under the false identity. Property managers are then left with a resident who does not exist and who they are unable to collect rent from.
True name fraud: This is where a victim’s personal information is fraudulently used on an application. Scammers obtain information like name, date of birth, or social security number to get an application approved. If the property management company is unable to flag inaccuracies, the scammer may get approved as a tenant, while the stolen identity victim is then on the hook for an apartment they never applied for.
“In all of these cases of fraud, a property manager will find that the resident they may try to evict does not actually exist or is not the person in their rental unit,” Doherty says. “As a result, the property management company can lose thousands of dollars of potential income and impact their hard-earned reputation.”
Ninety-five percent of property managers surveyed say they have experienced difficulties identifying, mitigating, or preventing fraud. For those who are able to identify it, the insight often comes too late. Three out of four property managers identified fraud after move-in, with more than one-quarter discovering the fraud much later into their lease, like seven months or later, according to the survey.
The average eviction or skip balance owed can cost property managers about $4,215, according to TransUnion’s ResidentCredit. Further, it can take 90 to 150 days to evict a tenant, which adds on more expenses in lost rent, back rent, and leasing and marketing costs.
Conducting a background check is not sufficient to detecting fraud, researchers note.
“Many property managers do not realize that true fraud mitigation should take multiple factors into account for a comprehensive solution,” says Doherty. “Property managers are in need of better technology so they may flag fraud at the first warning sign. Once they are more effective in getting the right renters, they will reduce the involuntary turnover cost, impact to reputation and become more cost efficient. … With fraud proliferating in the rental industry, property owners and managers can only keep up by radically transforming their approach to preventing and managing rental fraud.”
