Tenant Scams Exposed

by | Jun 28, 2010 | Rental Property Management Tips, Tenant Screening

“Is it just me, or have tenants lost interest in having good credit?” asks L.A. Property Manager Adam Bray-Ali. 
 
After 10 years managing multiple units, Bray-Ali identifies a common problem with today’s rental applicants — what he calls a “systemic decline in the desire to maintain good credit.  I’m taken aback by the lackadaisical attitude I’m seeing now, especially with younger candidates.”
 
In the past, a problem credit report might show a delinquent water bill or parking ticket.  “Those probably just got lost in the mail or fell through the cracks when a tenant moved,” Bray-Ali explains.  Next, there was a rash of credit reports showing medical collections. Understandable given the lack of insurance options in the U.S. But now, Bray-Ali is seeing seriously irresponsible credit mistakes, like car repossessions and ridiculously large credit card default.
 
Many applicants in the Los Angeles area, where foreclosures are particularly common, participate in a “strategic default” where they simply stop paying their mortgage altogether, and wait for the bank to take action.  Given the long delays with foreclosure actions, they live for free, save up money, and hope to buy another property for a distressed price.  “It’s a popular way to get out of an underwater loan,” Bray-Ali explains.
 
Despite the market trends, Bray-Ali enjoys a surprisingly low tenant default rate. His success as a property manager relies on two factors:  first, his eternally positive attitude – he really likes his job, and his tried-and-true checklist for tenant screening:
 
Always Prescreen Tenants 
“I’m big on prescreening on the phone, he explains. “Proper prescreening on the phone is a huge time savings for our leasing agents.  Find out what people want.  Are they calling because they are looking for something better than what they have?  Pose the question — are they upgrading or downgrading  Is the new property within their budget?  Do they even know what they want?”
 
Indecisive applicants are too much of a liability.  “If they have no idea what they want or what they can afford, I cut them loose in the phone interview. I’d prefer they drop off before I waste my time.”
 
If you are renting to multiple parties, whether families or unrelated adults, the next step is to determine who the decision-maker is. “This is the person you need to be dealing with, otherwise, you’ll never get the info you need,” Bray-Ali warns.
 
It’s crucial to find out who will be living in the rental property.  “I often have tenants who try to scam me by leasing the property in one person’s name because the other occupants won’t pass our tenant background checks.
 
While you are at it, make sure they tell you about kids.  It is not uncommon for Bray-Ali to receive a completed application that only lists adults even though the applicant has children.
 
Then, it’s time to run the tenant credit report.  If Bray-Ali’s experience is any indication, chances are good the credit report will be blemished.
 
“People with bad credit can still make good tenants.  I always feel that a landlord has a stronger stick than the typical unsecured creditor.  They’ll just cut off your credit cards or phone, but don’t pay rent and you end up on the street.”
 
It is also possible to mitigate poor credit with a higher deposit, or a short lease term.
 
But there’s always that looming question:  if you can’t attract perfect tenants, do you wait, or do you lower your standards and take a risk? 
 
“Some of our landlords are surprised how hard it is to find tenants,” Bray-Ali explains. “You are not always dealing with the super-performers with perfect credit and perfect income ratios for the units. But those perfect applicants are no longer the mainstream. You may have to bend a little or get creative with your options to avoid prolonged vacancies,” he says.
 
The Value of Eviction Reports
“Credit problems may have been a fluke, and those can be resolved,” Bray-Ali explains.  “But an eviction – that’s a big deal.  There are several steps along the way to an eviction, so a tenant has several chances to make things right.  When they don’t, that says that this is an applicant who has no respect for the landlord or the relationship.  I don’t want to deal with that person.”
 
“Eviction is the worst case scenario.  Even over a vacancy.”
 
Tenant Fraudsters
Another tenant screening trick I’ve learned is to watch an applicant when they leave.  Who’s waiting for them? 
 
Bray-Ali describes a particular situation where he had to remove a troubled roommate from one of his rentals.  This 20-year-old had a significant criminal history, not to mention “terrifically bad credit.”  Bray-Ali interviewed an applicant who wanted to rent the place in her name.  When she left the office, Bray-Ali happened to see her as she met up with that same young man to find out how it went.  “She turned out to be his sister.  I’m certain she thought as long as his name wasn’t on the lease, it would be fine for him to live there,” Bray-Ali recalls.
 
“I also drive by a tenant’s current residence if it’s practical,” Bray-Ali continues.  I look for pets, and the condition of the property.  References from the previous landlords carry a lot of weight, but I still like to see for myself.”
 
“It’s about connecting the dots,”  he says.  “I’m looking for ‘outlier’ type info.”
 
“I know landlords who don’t collect tenant screening reports, don’t check the contacts on the application.  That’s not only dangerous, but it sends the wrong message.  Those landlords don’t lay down the law, so they are not respected,” Bray-Ali says. 
 
When Tenants Don’t Want to be Screened
“I get a lot of scams from people who claim they are moving from out-of-state or another country, and want to rent sight unseen.  The only ‘condition’ is that they don’t want to undergo a tenant background check.” 
 
“I have a little fun with them. I tell them fine, just send me a deposit of $40,000 and it’s yours!  So far, no takers.”
 
 
Adam Bray-Bray-Ali is a licensed California broker and Property Manager with Arroyo Apartments in Los Angeles.  Bray-Ali is available to assist landlords with rental property management in northeast L.A.  Email Adam@arroyoapartments.com.
 
This post is provided by Tenant Verification Services, 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 in 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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