Emergency orders surrounding the pandemic have forced landlords to accept repayment plans allowing tenants to defer rent payments over time. Some provinces have extended that time frame well into 2021. Where does that leave the landlord when the tenant decides to move on before then? And where does that leave the next landlord attempting to fill a vacancy?
As the eviction systems come back online, evicted tenants are going to take to the streets in search of new housing. The eviction bans made no distinction between tenants who were affected by the pandemic and those who weren’t paying long before that time.
Those eviction records are not readily available to landlords. So, how is the next landlord supposed to tell whether the applicant applying for their vacancy is a paying tenant, someone who had a temporary setback, or a professional tenant who is skipping out on months of past rent due?
Whether bringing a new property to market or filling a vacancy created by evicting the former tenant, the last thing a landlord needs now is to lease to someone who will not — or cannot — pay rent.
Tenants facing eviction are desperate, and that can lead to an increase in tenant fraud. Professional tenants are still out there, ready to take advantage of the situation. Right now, landlords cannot afford to cut corners when it comes to tenant screening.
It is likely that tenant fraud will increase as tenants who are being forced out for nonpayment search for alternative housing. It helps to know the most common strategies tenants use to trick their landlords:
False employment information;
Fake references; and,
Omitted information such as previous addresses to hide a prior eviction.
Social distancing demands and easy access to online applications only exacerbate the risk by making it easier for applicants to make up answers and create false documentation.
Avoid these problems by asking prequalifying questions over the phone before meeting with an applicant. Later, you will compare those notes to the information on the completed rental application to catch discrepancies — someone who is lying may forget what they said earlier.
Meet the tenant “in person” even if that means using a video conference. It is important to see the person’s face and then check the person’s name against a photo ID that they provide — by scan if necessary.
Provide a cover letter on the rental application to explain that false information or omissions of material information is fraud.
Read through the completed application and see if it makes sense compared to what the tenant has already said. Check to see if the tenant would be qualified on the face of the application assuming everything stated is true. Then, verify the information through supplemental documentation and independent sources, such as calling the employer.
Employer references are surprisingly easy to fake, so be skeptical when verifying income. Websites that offer to provide a fraudulent employer or landlord reference for a fee cater to tenants who are desperate for housing. Avoid these scams by searching out the employer or landlord online, verifying the phone number on caller ID, or checking out the staff listing for the business.
It is also becoming increasingly easier to falsify documents by feeding them into websites that help tenants alter income or credit information. Bank statements are a great example of documents that may look official but have little value when verifying income. A tenant may take a cash advance from a credit line and deposit that money to appear qualified. The document itself may be a fake.
Ask for more than one pay stub or wage statement and see if the cumulative numbers match, or if cheque numbers are in ascending order. Don’t rely solely on the supplemental documentation — verify the information with a third party.
Self-Employed and Newly Employed Tenants
Because of the pandemic and resulting unemployment, landlords may see more self-employed or recently employed applicants. Many of these applicants are highly qualified and make great tenants. However, landlords accustomed to verifying income solely from pay stubs may need to tweak their tenant screening process.
Check the applicant’s prior employment history to determine if this person has a problem staying with the same job. Is there a feasible reason for the person going out on their own or taking a new job — like the ability to earn more or a business closure due to COVID-19?
For self-employed applicants, determine if the business model is up and running or still in development. Other important questions include whether the business is legal, and if the tenant is planning on working from home.
Income verification can be more difficult with self-employed applicants, but it is not impossible. Some business owners will pay themselves like employees and have wage statements. Perhaps the person has a work contract that spells out compensation. There may be tax returns that prove income, or the applicant’s accountant can confirm the figures.
Landlords who require applicants to have worked at the same job for a set number of months may need to adjust their qualifications. It is reasonable to assume that tenants who lost jobs will look for new ones, or even go into business for themselves.
It’s also reasonable to assume that more rental applicants will be relying on government assistance to pay their bills. Tenants who receive income other than from employment are protected by the Human Rights Code. It is discriminatory to reject an applicant for receiving government assistance rather than being employed. Tenants receiving assistance tend to have steady, fixed income, making these tenants low risk.
The economic turmoil caused by the pandemic will be a factor for many applicants. That does not mean they will be bad tenants. But it does mean that landlords need to run a tenant credit check to help:
Catch tenant fraud; and
Flag tenants who were not paying prior to the pandemic.
The value of credit checks comes from the fact that the information is held by an independent third party. Don’t accept credit documents that are in the possession of the tenant alone.
The pandemic will impact credit for many, but the damage, if any, should be temporary. The tenant credit check shows judgements or prior history of failure to pay on installment debts, long before the virus interfered with daily life. Income verification shows whether the tenant can pay rent. A tenant credit check shows whether the tenant is willing to pay rent.
Calculating Monthly Income
Some tenants have a difficult time converting their paychecks into a monthly figure that fits into the rental application. Often, this is an innocent mistake, and one that is easy to identify by reviewing pay stubs or wage statements.
But inflating income also is a common scam that tenants employ when they know they are not qualified. For instance, a tenant can add an annual or quarterly bonus into the monthly figure to bump up income artificially.
Someone with a high monthly income but a poor credit score may be fudging the numbers. It’s worth a conversation with the applicant to see if there is a reasonable explanation.
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.