Rental Fraud on the Rise During COVID-19

The prevalence of identity theft and rental fraud always rises when money is scarce. And the drastic economic situation caused by the COVID-19 crisis proves the point. For property management companies, rental fraud is the form of identity theft that impacts their bottom line most, and COVID-19 is making risk management more critical than ever. In a recent RealPage webcast, several industry experts weighed in on the damage caused by rental fraud during COVID-19, and what steps can be taken to reduce the risk.

Click here to see a free RealPage webcast, COVID-19: Impact on Risk, Evictions and Screening, and learn more about renter fraud and what you can do to reduce risk.

Matt Davis, RealPage SVP/GM, Financial Services puts a number to the risk of identity fraud: “The Federal Trade Commission came out with an analysis last year on fraud, and they identified that the fraud industry is now $1.7 billion annually. And of that, we had a 56% growth rate just within our industry of rental properties. This analysis was done prior to the recession that has just begun. So, I would expect from my experience that 2020 is going to be a 200% increase over last year. And then we'll have to see what happens in 2021. But the biggest challenge, now that the criminals have pivoted to this industry, is that they're here, and they're coming, and so we've got to take more aggressive action against renter ID theft.”

Webcast participant Robin Fluharty, Implementation and Compliance Manager for Pegasus Residential, notes that assumed identities are becoming more of the norm, and the risk is enormous. “For our industry, we're talking about lost rent revenue, damage and repair, legal costs and the time that the unit is out of the market during which we're not capturing that revenue. We need to stop the perpetrators of fraud before they gain their way into an apartment community,” she says.

Right now, property managers need to be extra cautious about whom they allow to move in. Many state and local governments across the country have responded to COVID-19 with eviction moratoriums. That creates greater uncertainty as to whether communities will be able to get them out.

Rooting out identity thieves also has become more difficult because there are now so many ways available to perpetrate rent fraud. Take illegitimate pay stubs, for example, an ever more popular technique used in fraudulent lease applications. There are now websites that can create falsified pay stubs that look completely legitimate. A user can enter the name of any company they wish to claim they are employed by and any salary they want to show, and the pay stub looks correct.

Fortunately, property managers have powerful tools available to them that can combat identity thieves looking to gain entry. Validating applicant identity is one major line of defense.

RealPage offers Identity Verification Programs (IDV) to help do the job. Robin Fluharty at Pegasus Residential reports significant results. “The great thing with RealPage IDV is that we're finding and catching more people prior to their getting into our leasing stream,” she notes. “So, we're not having chargebacks from stolen credit cards hitting our accounts anymore. Also, it is catching imposters prior to their being able to move into our apartment homes.”

Bryan Davis, IT Manager at CF Real Estate Services, has his own experience to share: “We've been with RealPage Identity Verification for about five quarters now. And, just since using it, we have probably saved between $155,000 to about $300,000 in bad debt write-offs. Those kinds of residents typically rack up between $5,000, maybe even up to $10,000 worth of bad debt between their rents, their damages and other ancillary charges.”

RealPage provides an additional, powerful line of fraud defense: AI Screening. Developed by the RealPage Screening and Data Science teams, this first-of-its-kind multifamily screening solution was built to predict not just an applicant’s ability to pay rent but also their willingness to pay—resulting in a much stronger prediction of future performance and renter behavior. The fact is, some renters who have the money in their bank account to pay their rent decide to spend it on something else instead. Others with very little money make a huge priority of rent.

Davis weighs in on the value of RealPage AI Screening: “It's been a great addition. We started rolling AI renter screening out last summer and now roll it out to every new community we take over. We're also going back and asking for client permission to add it to others. It has been the easiest rollout that I have done upgrading any type of product with RealPage or with any other software. Our sites have had pretty much zero questions on how to use it. It's very straightforward. The applicants don't seem to have any questions, either. And we have also seen, just in the short time that we've used it so far, about a 75% drop in skips and evictions for the communities using AI screening.”

The challenge from the rise in rental fraud is formidable. But summarizing the lessons learned so far is simple: maximize caution, ensure verification of all applicant information, take advantage of advanced fraud protection tools—and never stop taking action.

Click here to see a free RealPage webcast, COVID-19: Impact on Risk, Evictions and Screening, and learn more about renter fraud and what you can do to reduce risk.