Prevent fraud in the US property rental market for tenants and property owners

At the beginning of 2024, the National Multifamily Housing Council (NMHC) released the results of a survey conducted in late 2023. Results were drawn from a body of 75 leading apartment managers, owners, and developers in the United States. Virtually all respondents (93.3% of the surveyed total) had experienced tenant fraud in the last year. 

Tenant fraud is a serious issue for both the renter and the landlord. On the tenant’s side, fraud loses their landlord money, which can eventually mean higher rents and fewer units on the market for honest renters. Evictions, bad debt, and property damage are the result of tenant fraud, which ends up costing landlords $16B each year. Safety is an issue as well: 70% of respondents in the NMHC’s survey reported attempts at identity theft, ID fraud, or the use of another individual’s personal information to secure a lease. 

Tenant fraud is overlooked by both property managers and the general public

In 2022, the FBI Boston Division warned tenants about rental scams after a slew of fake rental listings and vacation homes cost buyers over $350 million nationwide. When compared to $16B of tenant fraud, though, the issue seems relatively small, especially considering the level of publicity given to short or long term rental scams. 

Tenant fraud is a major problem, although far less high profile. According to one property manager interviewed by the National Apartment Association, as many as 40% of rental applications are fraudulent. If the average rent is $1,500 per month across 35,000 units, it puts a full $21 million of revenue at risk every 30 days. With so much at stake and fraudulent rental applications on the rise, and the NMHC survey results suggest virtually all landlords have seen applicants lie about their income or misrepresent their finances – but did they catch them? 

Here are some best practices for property managers to keep in mind:

1. Look out for behavioral red flags 

In a 2019 article titled “The Gift of The Gab,” scholars at Cornell and the University of Cambridge analyzed over 2000 ads for long-term leases for fraud, pulled out fraudulent listings, and engaged in email dialogue with individuals positioning themselves as landlords. They found that rental scammers often used persuasive speech tactics such as:

- Emotional language to evoke sympathy or fear (“you know how hard it is to find a good place”) 
- A false sense of urgency or scarcity
- “Trust cues” (“I’ve been a landlord for many years”)
- Vague answers to requests for details

Tenant application fraud is different from rental scams, but some of these same behavioral tools might be deployed by applicants who want to rent what they can’t afford.

2. Implement controls on tenant screening 

These “fraudsters” aren’t professional con artists with forensic grade technology. The modern tenant might simply alter bank statements or paystubs using photo editing software, purchase a credit score, provide a fake reference, or falsify a background check by themselves. Despite the “DIY” nature of the fraud, over 38% of property managers didn’t catch on until the tenant had already moved in.

In light of the behavioral tactics described above, it’s plausible that a would-be tenant could use trust cues, emotional language, or vague responses to smooth over any missing details. 

Screening tenants with multiple steps (for example, two signatures on a screening report before making a decision) can mitigate some of this risk. Independent verification of employment details, including researching the company and calling their public phone number, is an essential step, too. 

3. Utilize automated screening tools

Software can help catch inconsistencies across documents, such as incorrect pay stub deductions that would indicate an applicant’s wages aren’t really what they say. 

Applicants may also attempt to mix their real identity with a “synthetic identity” – likely one with a clean credit profile – or use personal information belonging to someone else. These more sophisticated techniques used fortenant fraud are most easily caught with the power of machine learning or AI, which can help flag inaccuracies or errors that a human may not even catch. Pattern detection can detect irregularities in data, cross-referencing can uncover discrepancies which would otherwise go unchecked, and automated checks can help monitor for risk where it's needed most, helping landlords have more control over the tenants in their home.