Warning: Application Fraud Is on the Rise

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The National Multifamily Housing Council (NMHC) has released their Pulse Survey on Operational Impact of Rental Application Fraud and Bad Debt, which was conducted from November 15, 2023, to January 9, 2024, with some unsettling results. For instance, 93.3% of the apartment owners, developers and managers who responded to the survey stated that they had been subjected to some form of fraud in the past 12 months.

Over 80% of respondents stated they had experienced applicants misrepresenting information on applications that included falsifying or fabricating pay stubs and doctoring employment references and income. 70% reported an increase in fraudulent activity over the past 12 months that included identity theft, deceptive ID documents, misleading financial statements or use of another individual’s personal information, such as their Social Security Number.

The availability of artificial intelligence (AI), photo editing software, high-quality digital cameras and personal scanning devices make it quite easy for fraudsters to falsify documents in their favor. Fake pay stubs, credit scores, social security numbers, and bank account statements are easily available online to help tenants qualify for apartments they otherwise wouldn’t have been able to lease.

Although the survey was national, according to the results, “many (46.9% of this group) called out Atlanta, specifically, as a jurisdiction where increases in fraud were most concentrated. Texas and Florida were also cited by several respondents as having a higher than average concentration of fraud increases.”

Other unlawful activities noted by those surveyed included the use of fraudulent checks or other payment methods, unauthorized cohabitants, illegal subletting or other actions to evade application or the leasing process.

What does this rise in illegal activity mean to multifamily landlords?

According to the NMHC, “the rise in false rental housing applications is exacerbating rental costs, fueling the housing affordability challenges facing communities across the country and undermining the credibility of eviction data. These fraudulent incidents consist of a wide range of wrongdoing, including criminal behavior.”

If a landlord discovers false information on a rental application after a tenant has signed a lease, the tenant may be subject to eviction and may even be requested to leave the premises without notice. Additionally, if they are evicted for lying on a rental application, the judgment will appear on future credit reports and background screenings, causing trouble for the fraudster when filling out future applications.

“While most renters are honest, those who are not are causing the cost of rental housing to increase for everyone,“ said NMHC President Sharon Wilson Géno. “Additional delays in many jurisdictions in the lease enforcement process, even when there is clear fraud, incentivizes bad actors and means that this illegal behavior costs responsible renters even more. We call on lawmakers and courts to take action that will address this problem.”

One notable survey finding is that nearly one-quarter, or 23.8%, of eviction filings stemmed from fraudulent applications and the subsequent failure to pay rent over the past three years. 

How can I protect myself from application fraud?

Now, more than ever, landlords must be more vigilant and avail themselves of the tenant screening reports and landlord credit checks offered by the American Apartment Owners Association (AAOA). Trusted by property owners for over 20 years, AAOA’s services are more in demand than ever by cautious landlords who appreciate the ability to see an applicant’s credit, criminal, eviction and other reports almost instantly.

Following are some of the important screenings offered by AAOA:

• Credit report and score. A comprehensive AAOA credit report includes the creditors to whom the applicant owes money, how much of their available credit remains, whether they pay their bills on time and if they have been put in collection during the last seven years.
• TeleCheck Check Verification. Utilizing the applicant’s driver’s license number, this report will tell you if they have had a history of writing bad checks over the last seven years.
• Previous Address Tenant History (PATH). Any addresses and phone numbers associated with the prospective tenant’s Social Security Number (SSN), including places where they lived and worked, will be listed.
• Landlord Verification. You’ll want to know what kind of a tenant your applicant has been in the past. A call to their last landlord will tell you if the tenant paid their rent on time and treated the property with respect, leaving it in good condition. Did they abide by the landlord’s rules regarding pets and smoking and were they good neighbors? And most tellingly, would they rent to them again?
• Employment Verification. The current employer is contacted to confirm employment status, such as dates of hire and whether they would hire the applicant again. Landlords can also order verification of past employment.
• Social Security Number Fraud Check. Over 19 billion public and proprietary records will be searched to verify any potentially fraudulent identities. Results will indicate the year the SSN was issued, the state in which it was issued, whether the number was issued to the applicant or if the owner of that number is deceased.
• Nationwide Eviction Search. Utilizing the applicant’s Social Security Number, the database is searched for eviction filings and judgments for the past seven years.
• Nationwide Criminal Search. This search will include all records from the last seven years to see if the applicant was convicted of a crime. Arrests without conviction are not included in the results.
• Sex Offender Report. The sex offender search is similar to the criminal search and also goes back seven years. Results are for convictions only and do not include arrests.
• OFAC, Terrorist Databases and Federal Jurisdictions Searches. These reports provide information on some of the most serious national and international crimes, such as kidnapping, smuggling, identity theft and tax evasion. They also include terrorists, narcotics traffickers, counterfeiters, embezzlers and more.
• Tax Liens and Civil Judgments. This important information is no longer a part of the standard credit report, so AAOA is now offering it ala carte and as part of the Premium package.

With application fraud so predominant now, it is easy to see how important these screening reports are. As a responsible property owner, it is for your protection and that of your existing tenants to check out every prospective renter before you sign a lease with them.

If any red flags arise or anything needs clarification, don’t hesitate to ask for additional information from the applicant before making a final decision. Be thorough during your screening process and utilize the tools provided by your AAOA membership so that you are confident about who will be living in your property.