Landlords Beware: Tenant Fraud on the Rise

by Chris on December 3, 2018

A landmark study recently conducted on behalf of credit reporting giant TransUnion revealed a disturbing statistic: more than 80% of property managers surveyed have been victims of tenant fraud. Many experienced fraud multiple times over the past two years.

Equally disturbing, the study showed that most cases of fraud were not discovered until after a tenant skipped a rent payment. While half of scammers were exposed within six months, 7% remained for a year or more before the fraud was discovered.

This is a serious problem for all landlords, especially for those in provinces with slow or tenant-friendly eviction systems where an eviction may drag on for several months. Catching a fraudster before the person moves in may be the only way to avoid income loss.

According to the TransUnion study, online rental applications are a major factor in the uptick of tenant fraud. Online leasing provides a level of anonymity to tenants that landlords simply cannot allow. Landlords should take heed and deliver the rental application online only after meeting the applicant in person. Landlords should use their own rental applications and should not accept online rental applications provided by third-parties, such as advertising platforms.

The TransUnion study exposed three common tenant scams. The first is making up a fictional identity online. If the person is successful in securing a rental, he or she then will use the rental address to obtain credit and run up credit card charges before defaulting on rent and disappearing.

Another common scam is doctoring ID, credit cards and other identifying information to support a fraudulent rental application.

TransUnion also found it common for fraudsters to commit identity theft by taking pieces of information from other people and passing it off as their own.

Canada’s vacancy rate decreased this year. A tight rental market will only increase the likelihood a landlord will run into a scammer as desperation to find housing emboldens problem tenants to commit fraud.

To avoid these scammers, landlords must remain vigilant and stick to their tried-and-true tenant screening policies:

Prequalify tenants over the phone and take notes to see if the story remains the same;
Require a photo ID before showing a property;
Require tenants to sign and verify a rental application under penalty of perjury (fraud);
Verify the information in the rental application, including speaking to previous landlords; and
Run a tenant credit check to confirm the person’s identity and credit-worthiness.

In addition to following routine tenant screening policies, landlords can avoid tenant fraud by watching for these red flags:

Supporting documentation must match the rental application

Is the applicant driving the same car that is listed on the rental application? Can the applicant produce a vehicle registration with the same name and address that’s on the rental application? If not, the discrepancy must be explained.

Another test is to ask  the tenant to provide a utility or cell phone bill that matches the name and address provided on the rental application. If utilities are in someone else’s name, that flags potential bad credit or identity theft.

Stick to qualifications

Don’t drift off task when screening tenants. Problem tenants are good at changing the subject or talking themselves out of a jam. Pay attention to whether the applicant appears to be dodging questions.

Always speak with previous landlords when screening tenants. If the applicant asks that the landlord not be contacted, that’s a red flag.

Verify the information in the rental application before running a tenant credit check. If all looks good, go ahead and run the credit report no matter how convincing the applicant appears. These reports cannot be manipulated by applicants and provide a firewall for landlords who are being scammed.

Visit the Landlord Credit Bureau database when running credit checks. Report bad tenants so other landlords will have the tools to stop scammers in their tracks.

For more tips, see the TVS affiliate website, LandlordFraud.com.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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A landlord in British Columbia is living with the fallout from tenants who trashed his rental property. According to a news report, RCMP and bylaw enforcement officers stood guard as the recently-evicted tenants picked through heaps of trash to claim their belongings. In addition to seven months lost rent, the landlord must incur the cost of hauling off the trash and repairing the damage. His estimated losses are $40,000 — or higher.

His advice to other landlords: Screen your tenants!

It is true that picking the right tenants will significantly reduce the risk of income loss. Keep in mind that one bad tenant is all it takes to wreck a rental property. In one case, the tenant used the rental to manufacture meth and turned it into a toxic clean-up site in only 10 short weeks.

If one bad tenant can destroy a rental property, imagine what could happen with four or five.

The Dual Purpose of Tenant Screening

Tenant screening is the best way to choose good tenants. But screening also serves another purpose. If a tenancy takes a bad turn, a landlord’s ability to collect for unpaid rent and property damage depends on the information provided during tenant screening. Collecting and verifying the information necessary to qualify a tenant also creates a road map for collection. With fraud on the rise as well as the delays inherent to the eviction system, screening tenants may be the only way to reduce — and recoup — losses.

Leasing Policies Matter

Reducing the risk of income loss also requires strong leasing policies that keep tenants in check. For instance, in the recent B.C. case, the landlord rented to five individuals who apparently did not know one another. While leasing to roommates already is complicated, separate leases for the same property make is nearly impossible to discern which tenant is responsible for any property damage.

It pays to know who is living in the rental home. A strong guest policy prevents strangers from moving in without undergoing a tenant background check. Otherwise, the landlord will be at a significant disadvantage attempting to discover the tenant’s identity and collecting any debts owed.

Restricting the tenancy agreement to residential use only and limiting business activities such as overnight sublets can greatly reduce the risk of property damage.

The lease should provide consequences for criminal activity, which can discourage bad tenants and bolster the landlord’s rights. Likewise, warning tenants of routine inspections can ward off criminal behaviour, which often leads to property damage. Conducting those routine inspections allows a landlord to discover damage early on, which can reduce income loss.

Reporting Rent Payments through TVS not only exposes scammers, but the process also creates a paper trail that documents when rent came in — and when it didn’t. That makes it far more difficult for tenants to challenge what is owed in court.

The tenancy agreement must be clear and comprehensive. Eviction is a slow, arduous process. The last thing a landlord wants to face is dismissal of the case because the landlord can’t prove a breach of the tenancy agreement.

Self-Help and Landlord’s Right of Entry

Landlords who discover that damage is occurring at the property often cannot take immediate action. In fact, it may not be until after an eviction order is served on the tenants that the landlord discovers the full extent of the damage. Unfortunately, the situation could get worse: the landlord could enter the property or force the tenant out illegally, and wind up owing the tenant money.

When faced with this crisis, landlords should consult the rental regulations or an attorney before taking any action. Securing an abandoned property may require a police escort. At the very least, a landlord will need to regain legal possession of the property before removing tenants’ belongings and restoring the unit.

Documenting Losses

In the same way a landlord needs to provide good reason to evict a tenant, a landlord must document the losses to win a monetary award against the tenant. A move-in condition report is crucial for showing that the tenant caused the damage. However, the report must be detailed enough to convince a judge or arbitrator as to the extent of the losses. Make sure the condition report corresponds to the specific property. Don’t leave anything open to interpretation. For more on move-in condition reports, see our post, How to Improve Your Move-in Condition Report.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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