Multiple ways rental fraud is committed
In the last post, we discussed how fraudulent applicants can use stolen identities to get approved for and live in apartments. There are multiple ways an individual can pull off a fraud scheme, which may or may not involve their presence at the apartment.
The first way of pulling off a rental fraud scheme is through subleasing. With this method, a person first obtains a fake identity to get approved for an apartment.
This person does not plan to move into or live in the apartment they are approved for. Instead, the apartment unit is posted on common trading sites like Craigslist or Facebook marketplace as a unit available for sublease.
When the fraudster receives subleasing interest from a party, he/she would ask the interested party to wire a first-month deposit or a security deposit before moving into the apartment. This process is repeated with multiple parties so that the fraudster receives numerous wired deposits in his/her account. When a good amount of deposit is collected, he/she would disappear with the deposit without ever having to pay for rent.
As a consequence, those who fell victim to this fraud scheme would show up on their “move-in” date unable to enter the apartment unit. In some cases, because those who sublease the apartment are unaware of others who are doing the same, they may show up realizing that someone else is also moving into the same place.
Since a fake identity was initially used to apply for the apartment unit, it is difficult to trace the crime back to the actual person who committed it. Management companies are therefore left to deal with the consequences, including lost rent, while the fraud victims find it impossible to recover their initial deposits.
The second way someone can commit rental fraud is by taking advantage of regulatory loopholes. For example, eviction laws make it difficult to evict a tenant. The number of days it takes to evict someone ranges anywhere from 90 to 150 days. In California, the time period is close to six months. This means a person is allowed to remain in an apartment unit for six months even after a fraud case is realized.
A fraudulent renter who takes advantage of this loophole would apply for an apartment with a fake identity and live in it. After a period of time, he/she decides to stop paying rent. Because of the stated eviction laws, the fraudster would not be evicted from the apartment for at least six months. During this time, he/she can stay in the unit without having to make any rent payment. This amounts to six month worth of lost rent for a management company. After a case is solved and the fraudster is evicted, he/she simply shed the existing identity and move on to using another one, to commit another fraud at a new apartment community.
Rental fraud in the multifamily industry can take many forms, but a common theme among these forms is the purchase of fake identities. The use of fake identities not only gets the fraudster approved for an apartment to pull off the fraud scheme, it also keeps them from getting convicted when the fraud case is realized. Detecting the use of fake identities early in the application process is therefore crucial in protecting management companies and everyone else against potential losses.
Sares Regis Group protects communities and stakeholders with ID verification
Founded in 1993, Sares Regis Group offers vertically integrated asset management. They draw on over 30 years of real estate experience to build, market, manage, and maintain communities that remain attractive to customers while ensuring top performance for owners. Business Challenge: SRG management were seeing abnormally high rates of bad debt at three properties in … Continued