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In early October, police arrested a woman in New York City accused of forging housing paperwork — tax documents and pay stubs, among others — to obtain several apartments on behalf of gang members under investigation by the FBI. Among the false phone numbers she used was one linked to a man shot and killed in Queens last year. In one of the apartments in Brooklyn, they found five guns linked to gang members. Investigators say the primary purpose of the scheme was to store contraband.
When they abandoned the apartments, property managers and owners of these rental units were stuck with unpaid rent, utility bills, and, perhaps the most damaging, a reputation for criminal activity and easy for fraudsters to get into.
The rapid digital transformation introduced more convenience at a time when we needed to be isolated at home, but it also made it harder than ever to detect fraud with outdated tools. To protect their business against the economic impacts brought on by the current environment, property managers and landlords must take the necessary precautions. Staying ahead of fraud in the digital age means we need to fight technology with technology.
Fraud Is on the Rise
In September, a 28-year-old man pled guilty to wire fraud, false representation of a social security number and aggravated identity theft after police found him renting an apartment in East Boston under the identity of a person from North Carolina; the same identity he used to apply for a $40,000 loan from the Economic Injury Disaster fund. That same month, police arrested a man in Atlanta with multiple warrants who had used stolen identities to buy expensive cars and rent apartments in several states. Enter "arrested multifamily rental fraud" into a search engine and find even more stories just like these.
The rise in digital transactions has become fertile ground for fraudsters everywhere, including in rental housing. As we reported to CNBC in 2020, after the onset of COVID, our data saw a 30% uptick in what we call "fraud triggers" — applicant statuses with failed authentication or identified as high risk (or both) — from the previous year. The frequency of actual fraud incidents in the rental housing industry jumped nearly 50%, according to the Transunion survey. While many of the landlords surveyed reported their screening applications were able to flag fraudsters before move-in, 41% did not. And once the fake applicant leaves the property, the property owner, manager and landlord are left dealing with the repercussions.
The Digital Age Has Made Fraud More Sophisticated
So much of the rental application and payment process has gone online, making renters' lives easier in so many ways; but at the same time, fraudsters are using that technology to their advantage. A 2022 Snappt survey of one million financial documents found that one in eight had been fraudulently altered. The company estimates that 11 million fraudulent rental applications were submitted in the U.S. last year. From 2019 to 2021, reports of fraud, identity theft, and deceptive behavior jumped 67%. And according to 85% of property managers surveyed, the ease of getting fake documents online was to blame for these issues.
When COVID-19 accelerated the digital transformation, it created more opportunities for fraudsters to use technology to their advantage. People can easily design their own paystubs online. Fraudsters sell phony documentation on social media, like Facebook, and provide details like "Female with a 730 credit score, $18,000 credit limit and two credit cards for $350." They even offer packages and single services to get into luxury apartments ranging from pay stubs and digital social security cards to lease agreements and bills.
They may offer a credit privacy number (CPN) with a credit file and a healthy history to be used in place of a social security number (SSN) for credit checks. The ones sold online are linked to real SSNs stolen through data breaches and sold to dealers in online black markets. They create the CPN, open new lines of credit, rack up a respectable score with it and then sell to buyers online who need a new identity.
The people who buy these identities masquerade as good renters to get through traditional screening processes, like background checks and credit history reports. They take a fictitious persona purchased off of social media and apply for an apartment. Everything checks out, and the landlord or manager hands them the keys. They often use these units as a drop zone for other fraudulent purchases — cars, electronics — before skipping out in the middle of the night.
Fight Technology With Technology
Property managers need to outsmart the efforts of digital fraudsters using technology with more sophisticated technology. The industry can no longer rely on their eyes and ears alone to detect the subtle differences between legitimate and fraudulent digital documents. Look for multilayered technology solutions that can:
- Authenticate documents;
- Integrate online and offline identity information; and,
- Track device registrations and IP addresses.
The risks are too high to ignore. For a 3,000-unit multifamily complex, executives recently reported that fraudulent applications cost them an estimated $2.8 million annually. For those fraudsters who gain access to apartments, the average eviction can cost over $7,000 after unpaid rent, legal fees, and other charges, and the process can take up to a year before the property can be rented. And that timeframe doesn't even include possible damage — to the unit or the community's reputation.
Companies without identity verification software and not yet ready for an upgrade should at least ask for additional identity verifications, such as additional documents, to introduce some friction in the process. This can be enough to dissuade true fraudsters from proceeding further. While meeting applicants in person may offer some level of "gut instinct," it also introduces subjectivity into the process and is on its own, unlikely to help curb fraud.
The wave of digitization is unlikely to reverse, which means businesses in every industry need to catch up with the tools they need to fight fraud in digital transactions. Background screening and credit checks alone are no longer reliable measures to ensure the people who enter a rental unit are really who they say they are. To fight fraud today, businesses need modern solutions, and outplaying fraudsters at their own game — technology — is how we win it.