Tenant Fraud
Choosing the right tenant can make all the difference in the landlord’s business. Choice is more than filling a vacancy; choice is every effort to avoid financial risk. An applicant comes with a story and a history. The applicant the landlord sees is the one that is judged. What if the applicant has intentionally given false or misleading information about his history? Is a landlord prepared to protect his business by a thorough investigation and evaluation of the applicant’s story and history? In today’s market, a landlord must protect his business.
Tenant fraud is on the rise. A recently published independent consulting study commissioned by TransUnion to evaluate fraud in the rental industry found that more than 80% of property managers participating in the study had experienced tenant fraud.
Accordingly, to protect their businesses, landlords and property managers must increase their due diligence efforts, strengthen their tenant screening practices, and keep vigilant against tenant fraudulent acts. Discovering fraud after a tenant has skipped a rent payment is too late to prevent loss.
Tenant screening methodology properly utilized can serve as a first alert to tenant fraud. Tenant screening supported by a committed policy of full investigation and direct verification of applicant data helps to protect the landlord’s business. As a practical matter, rather than take an applicant’s information at face value, a landlord should independently verify applicant information, whether given orally or as written application. If something seems too good to be true, it probably is. A little skepticism on the landlord’s part may be a good thing to prevent fraud.
The simplest, most direct fraud control to avoid loss of rents is to recognize fraudulent behaviors, be alert to red flag issues, and thoroughly vet applicants throughout the application and interview process. The timing of the investigation and verification process is critical to identify fraud before advancing the applicant to consideration for tenancy. Once a tenant is installed, a landlord must use the legal system to remove the tenant from the property, which may take several months and be at great expense.
What can a landlord do to protect his business from tenant fraud? A key issue in fraud protections is thorough knowledge and understanding of applicable laws that regulate landlord-tenant matters. Rental fraud often occurs because a landlord is unfamiliar or unsure of applicable laws and legal processes. Tenants with the intent to defraud take advantage of a landlord who doesn’t know the law and hesitates in taking action.
Vigilance is also a key factor in identifying red flag issues and preventing tenant fraud. A landlord must be alert to discrepancies, omissions or inconsistencies in information in the application itself, as discovered during applicant interviews, or revealed in reference verifications.
A landlord should never be in a hurry to fill a vacancy without conducting adequate investigation and verification of applicant information. Patience and persistence in the landlord’s due diligence efforts can be a first line of defense in protecting the business from intentional harm from fraud or rental scams. An applicant intent on committing fraud is counting on a landlord being too busy to notice inconsistencies in his story or too desperate to rent up the unit. If the landlord is unfamiliar with landlord-tenant laws, or unwilling to take the time to follow stated rental practices, there is greater risk for tenant harm.
Adequate due diligence to complete all necessary tenant screenings is not a waste of time and money when compared to the costs of lost rents, eviction, and property damage that can occur if tenant fraud is involved. No matter how good an applicant looks on paper and in person, a landlord should always follow his stated policies and practices of tenant screening. An applicant in a hurry to move-in is a potential red flag. While there can be good reason for a quick move-in, an applicant who is legitimately looking for a rental should be knowledgeable of the rental process and should have allowed adequate time to search the rental market. The landlord has a duty of care to protect his current tenants by enforcing his policies and practices for screening and selection. Installing a tenant without adequate screening could be cause for claims of landlord negligence.