9 Ways of Dealing with Property Management Fraud

karina Updated on September 18, 2024 4241 views 16

As the dynamics of the rental landscape evolve, so too have the methods by which tenants may engage in fraudulent activities. This has created a challenge for landlords seeking trustworthy occupants. From misrepresented financial backgrounds to false references, this article unravels the spectrum of deceit that tenants can employ during the rental process.

This guide has provided landlords with a better understanding of the various ways in which tenants can engage in fraudulent activities during the rental process.

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Residential Rental Fraud Statistics

Fraud in the form of identity theft or fake identities has been on the rise in the rental housing arena, and the current digital landscape isn’t helping things a bit. In fact, technology may have escalated housing scams to a point where the industry is having difficulty keeping up.

TransUnion conducted a couple of studies to assess the biggest challenges landlords face when it comes to fraud in the rental housing industry. It was revealed that 97% of property management companies dealt with some form of fraud, with 80% of respondents saying they had to deal with the issue up to 20 times between 2016 and 2018. What is most shocking, however, is that 41% of the respondents discovered the fraud only after tenant move-in.

The Covid-19 pandemic that followed only made things worse. There was a significant 15.2% increase in fraud cases compared to just 10.3% over the same period pre-pandemic.

Common types of property management frauds in residential rental Industry

Fraud seems to be the price the industry has to pay as a result of increased digitization. Data breaches are on the rise—fraudsters are becoming smarter with identity theft, and property management companies finding difficulty keeping ahead of their precocious tactics.

Here are some of the most common types of fraud that landlords and property managers need to be aware of:

1. Synthetic fraud

Potential renters create a fake identity using a mix of both real and false information. This is presently the fastest-growing form of fraud.

Examples:

• Using a fake Social Security number and providing a real address to gain access to a rental property.
• Taking a real identity but altering key details such as birthdate, employment details, or financial information.
• Establishing a synthetic identity with a clean or limited credit history, then gradually building a positive credit profile by applying for small lines of credit or store cards.

2. First-party fraud

The applicant uses his own identity but provides fake or altered information on the source of income and rental history.

Examples

• Submitting fake pay stubs, employment verification letters, or bank statements that inflate their income.
• Providing inaccurate information about their rental history to hide previous issues such as evictions or property damage.
• Using stolen or forged identification documents to secure a rental property with the true owner of the stolen information unaware until discrepancies are discovered.

3. Third-party fraud

The applicant takes on another person’s identity or information to qualify for a rental property. In most cases, they use someone else’s Social Security number, name, and date of birth.

Examples: 

• Obtaining personal information belonging to someone else without their knowledge. The true identity owner may only discover the fraud when negative consequences, such as debt collection, arise.
• Impersonating an existing tenant to take over the lease or create a new one under the assumed identity.
• Using someone else’s identity to pose as a co-signer or guarantor and appear as a legitimate financial supporter for the rental agreement.

What must landlords do if they suspect or verify rental fraud?

The first thing to keep in mind is that you are a landlord, not a law enforcement officer. You cannot take it upon yourself to lock out a tenant the moment you discover some form of fraud, whether they used a true or a false identity.

If a landlord suspects that a tenant has provided false or fraudulent information—including a fake identity—they should proceed cautiously and follow legal procedures. The specific steps a landlord should take may vary depending on local laws and regulations, but here are some general guidelines:

1. Gather evidence

Document any information or evidence that leads you to believe the tenant has provided false information. This may include inconsistencies in the application, identification, or rental history.

• Obtain the applicant’s consent to conduct a background check.
• Contact previous landlords to ask about payment punctuality, any damage to property, or other issues.
• Contact current or previous employers to confirm stated position, salary, and length of employment.

2. Consult legal counsel

It’s advisable to consult with an attorney who specializes in landlord-tenant law to understand your rights and responsibilities in your jurisdiction.

• Legal professionals can advise on gathering evidence without violating privacy laws or infringing on tenants’ rights.
• If necessary, legal counsel can assist in obtaining subpoenas or court orders to access relevant records.
• Attorneys can help in initiating eviction or lease termination based on the grounds of fraud.

3. Contact the tenant

You can contact the tenant to discuss your concerns and ask for clarification. Allow them to provide additional information or correct any discrepancies.

• Draft a written notice outlining suspected fraudulent activities and specific lease violations.
• Give the tenant reasonable time to respond. This timeframe may vary based on local laws but typically ranges from 7 to 14 days.
• If the tenant fails to address the issues, consult with an attorney for possible legal action.

4. Verify information

If you still have doubts about the tenant’s identity or information, you can attempt to verify their identity through legal means, such as checking government-issued IDs or running background checks through reputable agencies.

• Conduct legal searches of public records to verify information such as criminal history, court records, and other publicly available information.
• Use reputable credit reporting agencies to obtain credit reports and ensure compliance with the Fair Credit Reporting Act (FCRA) and other relevant laws.
• Examine publicly accessible social media profiles for any information that may be relevant to the tenant’s background and lifestyle.

5. Follow legal procedures

If you have strong evidence that the tenant has provided false information or is engaging in fraudulent activities, consult your attorney to determine the appropriate legal steps to take. In many cases, this may involve initiating eviction proceedings based on the grounds of fraud or material misrepresentation.

• Keep detailed records of your findings, including dates, times, and specific incidents. Proper documentation will be essential if legal action becomes necessary.
• Contact a real estate attorney or legal counsel experienced in landlord-tenant matters.
• Serve a notice and provide an opportunity to cure. If the tenant fails to remedy the situation, further legal action may be necessary, which could include eviction or lease termination.

6. Comply with local laws

Ensure that you follow all applicable local, state, and federal laws regarding eviction and tenant rights. Eviction procedures can vary significantly by jurisdiction.

• Keep detailed records of your findings, including dates, times, and specific incidents. Proper documentation will be essential if legal action becomes necessary.
• Contact a real estate attorney or legal counsel experienced in landlord-tenant matters.
• Serve a notice and provide an opportunity to cure. If the tenant fails to remedy the situation, further legal action may be necessary, which could include eviction or lease termination.

7. Maintain documentation

Keep detailed records of all interactions with the tenant, including correspondence, evidence of false information, and any legal actions taken.

• Keep detailed incident logs that chronicle suspected fraudulent activities. Include dates, times, descriptions of the activities, and any other relevant details.
• When serving notices related to suspected fraudulent activities, ensure that they are in writing and clearly outline the allegations, lease violations, and any actions the tenant needs to take to remedy the situation.
• Whenever possible, obtain verification from third parties, such as other tenants, neighbours, or authorities, to support your claims.

8. Avoid self-help measures

Landlords should avoid taking matters into their own hands, such as changing locks or forcibly removing a tenant, as these actions can lead to legal trouble and may be considered unlawful eviction.

• When addressing suspected fraudulent activities, serve written notices to the tenant following local laws.
• If the suspected fraudulent activities involve illegal behavior, such as fraud or criminal activities, contact local law enforcement.
• If eviction becomes necessary, follow legal procedures. Better yet, seek legal counsel.

9. Report fraud

If you believe the tenant’s actions involve criminal fraud, you can report the matter to local law enforcement or the appropriate authorities.

• Contact your local law enforcement agency and provide them with detailed information about the suspected fraud, including evidence, incident logs, and any relevant documentation.
• If law enforcement decides to investigate the matter, cooperate fully by providing any additional information or assistance they may require.
• Depending on the nature of the fraud, there may be regulatory agencies or organizations that oversee specific industries or activities.

How RentPost™ can help you prevent fraud in rental property management

1. Thorough tenant screening

RentPost conducts in-depth tenant screenings, verifying rental history, credit reports, and backgrounds to uncover any inconsistencies or false information.

2. Identity verification services

Integration with identity verification services combats synthetic and third-party fraud, ensuring the legitimacy of applicant identities through cross-referencing with official databases.

3. Seamless income verification

RentPost integrates with reliable income verification services, enabling property managers to validate income details and thwart first-party fraud attempts.

4. Document verification and storage

The document storage system allows granular associations for cross-verification, ensuring submitted documents align with the information provided in rental applications.

5. Secure online rent collection

RentPost provides a secure online rent collection system, minimizing the risk of fraudulent payment activities and enhancing overall financial transaction security.

6. Advanced fraud detection

Utilizing intelligent filtering technology and universal search capabilities, RentPost™ employs advanced fraud detection technologies to identify patterns and inconsistencies in applicant information.

7. Continuous security enhancements

RentPost’s commitment to fraud prevention is evident in continuous software updates, providing property managers with the latest tools to stay ahead of emerging fraud trends.

Check out RentPost™’s complete features list and see how we simplify the entire rent process from application to move-out.

Can a landlord simply change the locks on a tenant with a fake identity?

Changing locks on a tenant with a fake identity would generally be considered illegal and unethical behavior by a landlord. Landlords must follow specific legal procedures and adhere to tenant rights, regardless of a tenant’s identity or background.

Here are a few reasons why this would be problematic:

1. Due Process: Evicting a tenant or denying them access to their rented property typically requires following the legal eviction process in your jurisdiction. This process usually involves giving proper notice and obtaining a court order to regain possession of the property. Changing locks without going through this process is typically unlawful.
2. Tenant Rights: Tenants have legal rights, regardless of their identity. Landlords must respect these rights, including the right to peaceful enjoyment of the property and protection from unlawful eviction.
3. Discrimination: Treating a tenant differently based on their perceived or actual identity, such as using a fake identity, can be considered discrimination, which is illegal in many places.
4. Contracts: Rental agreements and leases are legally binding contracts. Changing locks without cause could violate the terms of the lease agreement, potentially leading to legal consequences for the landlord.

If a landlord has concerns about a tenant’s identity or believes they are engaging in fraudulent activities, they should consult with legal counsel and follow the proper legal procedures. It’s important to note that landlords must work within the bounds of the law and respect tenants’ rights, even in challenging situations.

Final thoughts

Addressing property management fraud is of paramount importance for landlords and property managers to maintain the integrity of their rental operations. Utilizing advanced rental software solutions like RentPost™ play a crucial role in preventing and detecting fraudulent activities.

From robust tenant screening processes to secure documentation management, our tools offer a multifaceted approach to safeguarding against fraud. By embracing technology, property owners can enhance their ability to identify red flags, streamline verification processes, and ensure compliance with legal standards.

In this modern age, integrating innovative software has become not just a convenience but a strategic necessity in fortifying against potential risks, fostering trust, and promoting a secure and transparent rental environment.

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