Identifying and Preventing Rental Property Scams
Rental property scams have surged in 2023 due to stricter eviction rules and tenant protections, leading to increased fraudulent rental applications where renters misrepresent their identity or income to live rent-free, prompting property managers to struggle with verification processes that are often cumbersome, inconsistent, and legally sensitive, resulting in reliance on a fragmented mix of traditional checks and emerging identity verification technologies without a comprehensive credit risk assessment solution.
Property rental fraud is on the rise, with more than 70% of major apartment landlords reporting an increase in fraudulent rental applications during 2023, according to the National Multifamily Housing Council and the National Apartment Association. This surge is attributed to strict eviction procedures, a backlog in eviction proceedings, and lingering tenant protections from the COVID era, all of which have led to fewer evictions.
Rental fraud occurs when renters misrepresent their identity, income, or ability to pay. Leasing incentives, such as free months with no rent due, can allow fraudsters to live rent-free for extended periods before being discovered. Property managers are often left with tenants who cannot pay rent and who would not have qualified for the unit without fraudulent documents. There is a notable correlation between cities with low eviction rates and high levels of rental fraud, highlighting the importance of verifying applicant identity before leasing.
Some property managers have introduced friction into the process, such as knowledge-based authentication (KBA), to deter fraudsters. However, most rental companies are not accustomed to using technology for identity authentication. Instead, they often rely on traditional methods like calling employers and requesting W-2 forms, which can discourage legitimate applicants. Property managers are generally not equipped to act as fraud investigators and may find the process challenging for several reasons:
- The training required is too difficult or involves too many steps.
- There is a fear of violating fair housing laws if the screening process is not applied consistently, leading to accusations of unfair screening.
Some managers use identity verification products or require bank login services like Plaid to verify accounts and assets. However, there is no comprehensive solution for measuring credit risk, leading many to use a patchwork of technologies to verify identification and financial health.
A single technology or supplier would need to meet several requirements to be effective for property managers:
- It must be reliable and effective.
- It should integrate easily into the manager’s rental workflow.
- It should handle support calls.
- It must ensure compliance with fair housing laws.
- It should suit the property’s clientele and demographics.
Proof offers a solution designed to bring trust to every transaction online. Defending against fraud requires a layered approach. With Proof, rental companies can validate new rental applicants through a simple link on their website. The process includes scanning the applicant’s ID, validating that the person in front of the camera matches the ID, and running the information through a fraud decision engine. If successful, the applicant signs a form to confirm their identity.
The rental company then receives a Proof Identity Report, which documents all verified information and provides evidence for the company. If Proof rejects an applicant due to fraud, there is no risk of the rental agent being accused of inconsistency or bias. Applicants unable to verify their identity are immediately connected to a live notary from the Notarize Network, ensuring an equitable process for all applicants. Notaries can verify identity with minimal wait times and no need for appointments, allowing all rental applicants to complete the process.