Leasing Fraud in Multifamily and How to Prevent It
If you’re a multifamily property manager, chances are you’ve been dealing with fraud for a long time. According to Forrester Research (2018) over 97% of multifamily managers experience some form of leasing fraud every year.
Meanwhile, the long-term trend of all apartment marketing and leasing moving online has only accelerated over the last two years due to COVID-19. Even though its implementation was out of necessity for many property managers, technology that enables self-guided on-site tours, 3D virtual units, AI leasing chatbots, and online applications is simply more efficient, and would’ve been adopted by the entire industry eventually.
In addition to boosting efficiency, digitization of leasing has helped property managers prevent the worst case predictions about rent rolls in March and April of 2020 - anyone else remember how many people thought the sky was falling? Meanwhile, technology for committing fraud has proliferated and become widely available. Just google “edit a PDF bank statement” and the first page shows how easy it is to create fake documents. With just a few clicks, applicants can now create fake IDs, edit paystubs, and even make fake bank statements.
Source: NMHC
We all know how expensive it is to accept an applicant that never ends up paying a dime in rent because they faked their documents. This problem has only become worse with extended eviction moratoriums.
There are operational procedures you can implement at your company that will prevent some of this from happening without having to spend any money on software. Some of the best practices we’ve found are:
Require that applicants upload a photo ID, two pay stubs, and two bank statements with deposits on the bank statements that match the net pay on the paystubs [as part of every online application. Then, train leasing staff to make sure all the documents are consistent before approving the applicant. Some property management softwares even allow you to create workflow automations that force leasing agents to complete these tasks before approval.
Require that applicants have their employer fill out an Employment Verification Letter (link to a free template), and then call the employer to confirm it’s really the employer's signature on the letter.
Require applicants to fill out form 4506, which allows your company to contact the IRS directly to verify tax return data. This is especially useful for self-employed applicants, or those that are paid largely in cash, but it can take at least a business day for the IRS to respond.
The biggest problem with implementing these practices at your company are:
These operational procedures are time-consuming for applicants and leasing staff, which means you’ll convert fewer prospects to tenants, AND have to train all the leasing agents.
These operational procedures are still easy for fraudsters to circumvent. We frequently catch people who edit their pay stubs and bank statements to match each other perfectly.
There are also new technologies that have become available in the last few years to help mitigate fraud. These new offerings fall into three main categories:
ID Verification Services that check if the applicant’s driver’s license is real or fake
Document Verification Companies that authenticate pay stubs and bank statements and verify each document separately
Direct data access companies that let rental applicants voluntarily share banking and payroll information directly from the source, usually by giving up their bank account username and password
Each category has its own problems that are worthy of their own blog post (you can subscribe here to read those in the coming weeks!), but the main issue is that none of these options offers a complete solution for all types of applicants. Just think to yourself for a second how comfortable you would feel sharing your checking account password with someone, or how many fraudsters have real photo IDs but fake their pay stubs (it’s a lot). Implementing just one of these solutions slows down the leasing process without fully solving the problem - and fraud will only become a bigger issue with the changing economic climate.
This is why we founded Two Dots, and have had so much early success with large multifamily managers. We’re a complete end-to-end solution that is able to verify identity, paystubs, bank statements, and tax transcripts while making sure qualified applicants are approved very quickly. Our AI takes all of the operational best practices described above, combines it with the most sophisticated document and ID verification tech, plus adds direct access to government databases like DMV records, and gives your leasing staff a simple approval or denial directly inside your property management software.
The result? Reduced bad debt and evictions, a consistent and automated process across your entire company, leasing staff spending less time playing detective with paperwork, and a central dashboard where you can monitor how many applications you’re receiving and different rates of fraud across various markets and properties.
This is just the start of bringing some of Silicon Valley’s most sophisticated technology to the real estate space. Our goal is to not only make instant fraud-proof leasing a reality, but also to be one of the technology vendors in our industry that people actually like to do business with and trust. If you’d like to learn more about the latest in leasing fraud, the technology being used to stop it, or just catch up on the latest in proptech, feel free to reach out.