Renter fraud is out to bite multifamily but technology can mitigate the sting

Renter fraud is not only on the rise, but is spreading to new areas of the U.S. A staggering 93.3% of members of the National Multifamily Housing Council experienced renter fraud in 2023, while 70.7% saw an increase in fraudulent activity during the same timeframe.

This increase in renter fraud is having a significant impact on the multifamily sector. However, if an operator invests in the right technologies, they can go a long way to mitigating the risk.

“Fraud has a wide range of nuanced elements and our approach to mitigating fraud is comprehensive,” said Laura Patterson, senior director of risk and strategy at RMR Residential, the multifamily platform of The RMR Group, which operates a portfolio of 21,000 units across 60 properties in eight states. “We continually try to source, evaluate and work with the best technology providers in the space to reduce our exposure to fraud.”

The most common forms of renter fraud are false employment documents such as paychecks, fake information on application forms and identity theft. Renter fraud also includes unauthorized cohabiting and subletting or incorrect payment methods.

Fraud has significantly increased over the last few years, TheGuarantors’ Regional Vice President of Sales for the East region, Courtney Wilson, said. There are two main drivers for this: the eviction moratoriums put in place during the pandemic and the acceleration in the growth of fraud technology.

Some multifamily operators are unwittingly increasing the risk of fraud by lowering their barriers to renting an apartment, Wilson said. As the supply of multifamily has grown in cities such as Atlanta, competition for residents has increased. However, lowering barriers such as security deposits makes it easier for a potential renter to commit fraud.

Fraud impacts multifamily operators in several ways, starting with the financial implications.

“As multifamily operators, we’re continually looking at asset performance, including physical occupancy and economic returns,” Patterson said. “When there is an increasing presence of fraud, that will ultimately decrease a building’s income. Additionally, renter fraud wastes resources by diverting the attention of onsite staff from other important value-adding initiatives that support the resident experience and drive leasing.”

Renter fraud is also impacting the multifamily experience for residents, such as by increasing overall rents, Wilson said.

“Margins in property management are already razor thin," he said. "One of the key levers that operators tend to use to offset bad debt is raising rents. An owner or operator cannot just write off a large percent of their income as a loss, and take no action to offset it."

So what can be done? Fraud has grown to such an extent that multifamily operators have no choice but to increase their efforts to mitigate the risk. For RMR Residential, this means investing in the right technology.

“Gone are the days when you could set up a general screening process using only people,” Patterson said.

RMR Residential uses a variety of systems for comprehensive fraudulent screening. In addition to these technologies, other companies that want to follow suit can look into solutions like those provided by TheGuarantors to gain an additional layer of protection and capture fraudsters that fall through the cracks.

TheGuarantors’ risk mitigation solutions serve as a final defense against renter fraud when it does occur, Wilson said. The company’s Rent Coverage solution means that when defaults, skips, no-shows and vacancies occur, lost rent will be covered. Similarly, Deposit Coverage offers a lower-cost security deposit alternative to residents that covers the operator when damages occur.

For all technology companies providing solutions to tackle fraud, and to ease its burden on operators, the biggest challenge is staying ahead of the ever evolving game, Wilson said.