Fighting Back

Magazine ,

By Brad Kuhn

Mallory Hoffmeyer, community director of the Essex Luxe apartments, a high-end 330-unit multifamily development in Central Florida, has seen it all. She’s seen people rise from the dead to apply for an apartment lease and witnessed deadbeat tenants from other properties miraculously make their unpaid balances disappear.

“Digital documents have made our lives easier,” she says. “But they have also made it easier for people to falsify things.”

Digital technology has made modern property management better in many ways — from access control and amenities management to virtual tours and online leasing. COVID-19 and the need to socially distance in 2020 accelerated the adoption of such technology. But every opportunity has its opportunists. As the multifamily industry automated to accommodate contactless leasing, fraudsters did their best to take advantage of the increased anonymity. The degree to which property managers respond and adapt to this evolving threat could have a significant effect on performance in 2021 and beyond.

A growing threat

A study by TransUnion found that, as of August 2020, more than 15 percent of all apartment lease applications were fraudulent, up from just over 10 percent in the prior year. Almost two-thirds of respondents indicated that they had experienced application fraud in their portfolios and more than 40 percent failed to discover that fraud until after the fraudsters had moved into their property.

“A majority of applications these days are being submitted online,” said Timothy Fortner, CEO of property management software maker BetterNOI. “Technology has advanced to where people can produce forged documents — fake pay stubs and even IDs — at home. If you don’t know who you are dealing with, it makes it hard to prosecute or collect on a debt.”

The most common document-related application fraud schemes, according to Fortner, include:

  • Altered identifiers — switching from first to middle name, changing a birth date or phone number.
  • Stolen identity — using the Social Security number or credit score of another person — often deceased. 
  • Synthetic or false identities — using digital technology to manufacture an entirely new identity.

Hoffman said she has experienced all of those in the past year, including an applicant who tried to use his own good name and credit to sign a lease on behalf of his brother, a felon, who would not have qualified based on his criminal record, and another who presented a Social Security card created from an online template.

“Anything in an editable format, even if it doesn’t appear to be edited, we reject automatically,” Hoffmeyer said. “A PDF is not as big of a red flag for me because those are harder to change, but there are still ways.”

Effective detection

Catching fraud during the application process is critical because applicants who establish occupancy under false pretenses tend to be high-risk tenants, and it can cost a property thousands of dollars to correct a problem after the fact. In addition to the actual cost of eviction, there is the possibility of physical property damage, the missed opportunity to rent to good tenants, the potential for criminal activity, reputational damage, and the potential loss of other neighboring tenants.

Traditional background and credit checks are good as far as they go, but it is becoming increasingly necessary to verify the identity of an applicant to ensure that the background being checked is actually that of the applicant and that any documentation provided is true and correct.

“There are more than 10,000 active fraud rings in the U.S., creating false identities with documentation,” said Brian Zrimsek, industry principal with MRI Software. “I think it’s closer to 30,000.” 

MRI Software allows property managers to match applicant-presented pay stubs with actual source data from payroll processors and actual bank deposits over time. 

“When you consider that it can take six to seven months to resolve a fraud case, that’s $9,000 in lost revenue, and maybe even more under an eviction moratorium,” Zrimsek said. “By using all of the technology that is out there to increase fraud detection, if you prevent even one, you’ve paid for the software.”

Citadel ID offers a similar service, allowing landlords to verify up to three years of applicant payroll data directly from the source.

“One in six applicant pay stubs is fake,” said Kirell Klokov, founder and CEO of Citadel. “You can no longer rely on documents that come in the form of a PDF.”

Early detection might have helped Hoffmeyer avoid the hassle of evicting a tenant who gained access to the property using fraudulent credentials, lived rent-free under the promotional terms of his lease, and then filed a COVID hardship claim that prevented Essex Luxe from evicting him for several months. He never paid the landlord a dime.

Practical considerations

As is often the case, there is a gap between the potential benefits of advanced screening tools such as MRI Software and Citadel ID and the day-to-day realities of taking care of business.

Michelle Lawrence, compliance manager at WRH Realty Services Inc. in Jacksonville, said she relies primarily on the screening capabilities embedded within the Yardi Multifamily Suite software the company uses to manage all of its properties.

Instead of investing in new technology, WRH recently consolidated application review into a single, centralized processing center. The arrangement, she said, gives her team better insight into fraud trends by giving them 700 to 800 applications to review per month, instead of the handful or so that they might otherwise encounter during the same period at an individual property.

The company has also developed a culture of communication and information sharing, which has resulted in the creation of an encyclopedia of various fraud schemes.

“We call it our fraud bible,” Lawrence said. “It’s something we’ve been building for years and years.”

One piece of advice from the WRH fraud bible: Look for simple but meaningful mistakes that might be red flags. In one instance, for example, they found an Amazon pay stub purporting to be from 1918 instead of 2018. In another, the back of a purportedly legitimate Social Security card was crumpled and faded, while the front was pristine and unblemished.

Hoffmeyer is also reluctant to invest in new technology, preferring to rely on her own instincts and the screening capabilities built into her property management software.

“We run every resident through ResidentVerify. That will usually catch the obvious ones, such as those trying to use a deceased person’s Social Security number. We’re still doing pay stub approvals in-house. If we don’t see any red flags, we don’t investigate further. Administratively, that would be a nightmare.”

A healthy dose of skepticism can go a long way, Hoffmeyer said. Beyond that, she relies on an even simpler tool: “Google is my best friend.”