As a multifamily property manager, there’s no question that you need systems in place that can help you stop property management fraud before it happens. After all, whoever originated the phrase “there’s no such thing as bad publicity,” clearly never saw his or her property on the 6 o’clock news under a headline of “FRAUDSTER EVICTED AT LOCAL APARTMENT.”

Fraud occurs across many industries, and multifamily is no exception. The majority of property managers become aware of fraud in their community within the first six months after the resident moves in. Addressing the situation can lead to eviction, disputes, and a bad reputation for your apartment community. It’s crucial to understand the ways in which fraudsters can sneak their way into your properties and how to prevent them from doing so.

What is multifamily rental fraud?

When a prospective renter completes an application for an apartment using false information, this is considered rental fraud. The property leasing office is responsible for evaluating the application and determining if the information is valid. Insufficient screening processes can result in fraudulent residents living in an apartment community for free, or on someone else’s dime.

What rental fraud might look like

Forged documents, missing information, and identity theft are key pathways that fraudsters can use to get into your multifamily community. While some of these vulnerabilities may seem like relatively small access points, ApartmentList actually estimates that 5.2 million renters in the United States alone have lost money due to rental fraud.

Presenting fake documentation is a common tactic that fraudsters use as part of the apartment application process, particularly regarding paystubs. Did you know that “fake paystub for apartment” is such a high-volume search term that it shows up in Google’s Autofill feature? While some fake documents might fall on the “unbelievable” side of forgeries, others are quite convincing and reasonably difficult to detect. Even face-to-face interactions with applicants could be fraudulent, and as such, it’s important that your property prepare for these situations by updating your resident screening systems and training your leasing staff to spot fake documents.

In recent years, the application process for multifamily prospects has largely moved online, and fraudsters have come to take advantage of this. Without the proper systems in place to verify identity, your property could end up with leases signed by non-existent residents. These residents could be people who have had their information stolen, or they could be entirely made-up people, created for the sole purpose of building credit and passing as someone else.

How to prevent property management fraud in your multifamily community

Stopping fraud before it happens is based almost entirely around recognizing flags at the leasing level, to prevent fraudsters from moving in to your community. The best way to pick up on “red flags” that may signal fraud is to add multiple layers to the fraud detection processes. Here are a few things to be on the lookout for:

1) Duplicate addresses – Some fraudulent applications may have the same address used on multiple applications. Recognizing these duplicates can help you stop a fraudster before it’s too late.

2) Questionable personal information – Credit reporting agencies can be used to look up prospects, cross-reference the application data, and verify their cell phone number against carrier information. If a fraudster has used a burner phone number on his or her application, this check will reveal any discrepancies between the number and the affiliated carrier.

3) Verified rent payments – Reporting rent payments to credit bureaus can help leasing staff cut down on fraudulent activity by incentivizing good behavior. Fraud is less likely to happen if renters know that their rent payments are having a positive impact on their credit history.

4) Multiple credit card uses – If the same credit card has been used on multiple rental applications, and by multiple people, this is a red flag that warrants further investigation.

Catch fraud before it happens with resident and tenant screening

No matter what action you take to defend your property against fraud, it’s vitally important that you make sure your solutions are reasonable. Catching fraud before it happens is crucial to the reputation and upkeep of your multifamily property, but overly cumbersome processes can also drive resident satisfaction lower amongst renters who are following the rules.

At MRI Software, empowering property managers and other real estate businesses is at the core of what we do. To help identify rental fraud, MRI offers a range of resident and tenant screening products, including Resident Screening, that can help you keep fraud out of your multifamily complex. Plus, through MRI’s Partner Connect network, you can access screening solutions from our many partners and choose the solution that works best for your business.

This article was written by Aaron Durkee, Director of Product Management for MRI Resident Screening and Robyn Kunz, Senior Director, Screening.

A recent advisory opinion from the Consumer Financial Protection Bureau affirmed that background screening companies who carelessly assign a false identity to housing applicants are breaking the law. The organization specifically calls out name-only matching procedures, which don’t ensure maximum accuracy.

What do the repercussions of incorrect screening reports look like for apartment applicants? And how can property managers trust that their screening service is doing more than just matching names?

In an article entitled “How Automated Background Checks Freeze Out Renters,” we see real-life examples of how inaccurate screening reports harm prospective residents, and in some cases result in being wrongfully denied.

Such reports are known as “instant” background checks, and they rely on algorithms and computer-based “matching logic” to determine which criminal, eviction, and sex offender records are reported to a landlord during the tenant screening process. These algorithms are far from perfect, and often report records that belong to a different person with a name similar to the applicant.

When the data doesn’t add up

One example cited in the article was that of William Hall Jr., whose housing application was turned down after a background screening company labeled him a sexual abuser. The William Hall who actually committed that crime was 30 years older than Mr. Hall Jr. It would only take a minute or two for a human to determine that the record should have been excluded from the resident screening report. However, a representative from a company that provides instant background checks is quoted in the NYT article as saying that verifying the information on its reports “would be an overwhelming task.”

Risks for multifamily apartment landlords

An incorrect screening report not only creates disruption for the applicant, but it also puts the apartment landlord at risk. Wrongfully denied applicants can quickly turn into plaintiffs in lawsuits against landlords and background screening companies. Many of these cases are settled for undisclosed sums, so it’s difficult to calculate the true cost to landlords and background screeners. But even cases that are settled quickly often result in tens of thousands of dollars in legal fees alone. And those numbers can multiply when the lawsuit turns into a class action, which is exactly what happened when William Hall Jr. sued over his inaccurate background check.

Compliance violations

Additionally, inaccurate screening practices pose a compliance risk for multifamily property managers. Fair Housing laws apply to screening services, and if your property is wrongfully denying a prospective renter based on false information, then you could be in violation of the Fair Housing Act. Understanding how your screening service aligns with fair housing laws can prevent legal issues for your multifamily property.

Competitive edge

Today, as a result of the COVID-19 pandemic, the rental market is more competitive. Prices for new 12-month leases decreased by 2% from March to April 2020, according to the MRI Software Market Insights report. With increased reliance on technology and digital services to avoid face-to-face interaction, it’s important to ensure that those technologies deliver the right results. Landlords have an opportunity to leverage screening practices that prioritize accuracy over speed to select the right tenants for their community.

Human touch

Multifamily professionals are not experts in background screening, and they should rely on a provider that incorporates human oversight into the screening process. So how can multifamily property managers reduce risk and more accurately screen tenants?

MRI Resident Screening allows multifamily properties to run comprehensive credit and background checks with the appropriate efficiency and risk management. With drill-down reporting capabilities, a team of in-house investigators, and proprietary credit check technology, MRI’s resident screening service offers a configurable approach to reduce risk for property managers and their communities.

Accurate background screening is not an overwhelming task

As a society, we often think instant is better. Instant purchases, instant service, instant results from the web are all logical markers of advancement and improvement in technology and commerce. But when instant also equates to inaccurate, it’s time to take a step back. Is it really better to continue damaging the lives of renters and causing landlords to miss out on good tenants? Immediate results aren’t always the right results.

Learn more about resident screening best practices in this on-demand webinar: What your Resident Screening Solution isn’t Telling You.