Brian Zrimsek wants you to Google the term “fake pay stubs.”
Doing so generates more than 500,000 results, such as “Your Pay Stub in a Minute,” “Create Your Fake Pay Stub Here,” and “Make Free Fake Pay Stub Online.”
Click through on many of the results, and you will see professional-looking sites, including ones that claim to be Better Business Bureau accredited and others with tutorials about how to spot fake pay stubs, while offering to create a “real” pay stub in minutes.
Still others claim to be legitimate businesses to help firms with their own payrolls and denounce the illegality of forging documents online, while at the same time offering to do just that. For example, take this chestnut: “While you cannot make check stubs for free legally, you can do so easily using [our] generator and have a 100% money back guarantee.”
Those dubious promises are signposts of a larger issue for multifamily executives today: the prevalence, and ease, of leasing application fraud in recent years, an occurrence that has only been exacerbated by the pandemic.
“Desperate times call for desperate measures,” says Zrimsek, industry principal for Cleveland-based MRI Software, which bought the fraud prevention screening solution CheckpointID in October. “As more of the population has fallen on hard times due to the pandemic, more people were willing to push the boundaries when trying to secure housing. At this point, 97% of properties in the industry have experienced some form of fraud.”
In addition to fake pay stubs, applicants are submitting falsified bank statements to back up the aspirant numbers on their falsified income documents, while others are floating fake or stolen IDs to lease apartments under a fictitious profile. Industry observers say currently around 15% of applications are falsified in some way, and that the fakery isn’t just limited to individuals, but also includes entire rings or “swarms” of fraudsters applying at their properties.
The Different Flavors of Fraud Today
Zrimsek breaks down the different types of fraud companies are seeing in the application process today:
- Application and document fraud: Applicants use fake or altered documents to validate employment and income;
- Synthetic fraud: The use of an identity that has been wholly fabricated as opposed to an actual, stolen identity. This is favored by fraud rings, of which there are approximately 30,000 currently in operation, according to LexisNexis; and
- Identity theft: An applicant has assumed the identity of someone else, including their credit file.
The problem isn’t just contained to the multifamily industry. A year into the pandemic, TransUnion reported a 46% increase in fraudulent digital transaction attempts against businesses worldwide, with a 22% increase in the U.S. alone.
“Fraudsters are always looking to take advantage of significant world events. The COVID-19 pandemic and its corresponding rapid digital acceleration brought about by stay-at-home orders is a global event unrivaled in the online age,” says Shai Cohen, senior vice president of global fraud solutions at TransUnion. “By analyzing billions of transactions we screened for fraud indicators over the past year, it has become clear that the war against the virus has also brought about a war against digital fraud.”
The High Cost of Apartment Application Fraud
While the problem is widespread throughout society, its costs in multifamily are particularly high.
For example, Zrimsek estimates that when a disingenuous applicant makes it through the apartment screening process, it takes approximately 6.5 months to resolve it.
“With the national average monthly rent around $1,500, each time this happens it puts as much as $9,000 in revenue at risk,” Zrimsek says. “Then, you have turn, legal, and commission costs.”
Multiply that by the 15% fraud rate operators are reporting, and a 200-unit property could see as much as $270,000 in revenue at risk.
The eviction moratorium imposed by the Centers for Disease Control and Prevention during the pandemic has only made matters worse, operators say.
“I can’t think of a worse city to try and evict someone than Chicago in normal times,” says Mike Zucker, managing partner at Peak Properties, an operator of 7,000 units. “During COVID, it is just that much worse. The best case here is a minimum of six months without receiving rent.”
Tech Making it Easier to Lease, and to Defraud
The problem has been compounded within the apartment industry by the rapid adoption of proptech during the pandemic. While virtual and self-tours have been lifesavers for many operators, allowing them to lease vacant units without putting staff at risk or scaring off pandemic-weary prospects, there’s a dark side to taking the leasing process virtual.
“Renter fraud was already on the rise prior to the pandemic, but the increased adoption of agentless touring and leasing tools, which allow residents to find and rent an apartment with zero in-person interaction, has opened the door for even more fraud,” says Alec Page, vice president at Park City, Utah–based RET Ventures, an early-stage venture fund that invests in multifamily technology firms.
And while passing fake or stolen IDs is a real issue, the majority of operators say the problem stems from fake documents, which have become increasingly easy to obtain or create.
“We experience a consistent percentage of modified documents throughout the leasing process,” says Laine Gomez, a partner at Larkspur, California–based Catalyst Housing Group, which runs 2,781 units. “It’s much easier to edit documents on your computer or phone than it is to execute a lease with a fake or stolen ID.”
Or, as Daniel Berlind, CEO of Los Angeles–based document fraud detection solution Snappt puts it, “There’s this constant game between us and the bad actors on the other side, because as things have gone virtual and the technology has evolved, we’ve lost that face-to-face B.S. detector. It’s inevitable.”
Is it legal? Probably not. But that’s not stopping anyone from doing it.
But while companies that provide bogus documents openly advertise online, just providing access to those documents falls into a gray legal area. On the pay stub side, for instance, many of the sites operate under the guise of being above board by offering payroll services to legitimate customers.
“The vendors will use language to suggest that what they’re selling are replicas or novelty in some way,” says Thomas J. Holt, a professor in the School of Criminal Justice at Michigan State University who studies online document and data fraud. “They say it’s not a product for physical use, and so they try to skirt the law by suggesting that they’re not actually providing legitimate documents.”
That puts law enforcement agencies on their heels, Holt says.
“That language raises the specter of whether it’s illegal or not,” Holt says. “Criminal prosecution is probably going to come more around the use, rather than the sale, of those documents.”
In other words, it’s up to apartment operators to flag the fraudsters who come to their doors. But doing that puts multifamily pros, especially those working on the front lines during the pandemic, in a precarious and often powerless position because they have few resources to take action—especially against applicants who get through the process via fraudulent means, and move in under guise of legitimacy.
“It’s absolutely a crime,” says Page. “Unfortunately, it’s very hard to track down and prosecute someone who’s rented an apartment sight unseen with entirely fake documents. Once they’ve done that, the damage is done.”
Coordinated, Organized Attacks
Take the example of a property manager with nearly 35 years in the industry who operates in the Southeast, but who asked that their name not be included in this article for fear of fraudsters targeting their firm even more than they already have.
At their offices, they’ve increased the documentation required during the leasing process, which has helped flag fraudulent applicants. But for the most brazen fraudsters, just catching them in a lie isn’t enough. “Now, we’re in a dilemma. We’ve collected all this data, and we’ve got to deny that person because we know she’s fake,” the operator said about a recent applicant. “But what do we deny her for? That we found out on social media that she’s actually her sister? How do we prove that? The bottom line is you start to question your own sanity.”
This operator also says they don’t have the resources to combat the volume of fraudsters who are showing up today, especially when they come in “swarms,” or coordinated attacks, to try to wear their leasing agents down.
“This is where the story really goes sideways,” the operator says. “They hit you in a week with 25 applications, and you’re overwhelmed with the paperwork. Then, they inundate the staff, calling and asking the same questions over and over, putting you in crisis mode to wear you out and try to get through. They know the more pressure they put on you, the more mistakes you’ll make.”
This operator isn’t the only one to have picked up on coordinated efforts by groups trying to infiltrate businesses in this way, or to think that they have been targeted.
“Before we had tools to stop fraudsters, individual buildings or submarkets would become targets, and we would fall victim to falsified applications,” says Gomez at Catalyst.
According to a recent LexisNexis report, “While some of these fraud rings are comprised of what might be considered typical criminal professionals, others consist of family members or groups of friends who collaborate to improve their rate of success and increase the scale of their fraud.”
Other times, it’s a single person submitting multiple fake applications to increase their chances of being accepted.
“In the most dramatic case, we have seen more than 20 applications by a single individual at one of our communities,” says Chad Cooley, managing director of strategic business solutions at Greenbelt, Maryland–based Bozzuto, which operates 85,000 units. “The sophistication and persistence of fraudulent activity is growing and evolving during the pandemic.”
Scammers Scamming Legitimate Renters
Operators also report an increase in “spoofed” listings, where fraudsters take content from legitimate apartment firms’ websites and then repost it to take applications—and the accompanying fees, as well as deposits and first month’s rent, when successful.
“What’s new this time around is they are targeting some of our largest members’ communities,” says Sarah Yaussi, vice president of business strategy at the Washington, D.C.–based National Multifamily Housing Council. “Our members have found apartments owned by a number of companies, not just one, on very professional-looking websites, being offered for rent. They don’t have the typically misspelled words or awkward English you usually see. They’re fairly sophisticated.”
Indeed, the prevalence of phony listings during the pandemic where technology is being used to lease apartments virtually has become so pronounced that it also has put prospects on edge.
Just listen to Berlind, Snappt’s CEO. While his fraudulent document detection solution has been in high demand during the pandemic—growing to more than 100,000 units on the platform after having launched in 2019—he’s also experienced the weariness that fake listings have on prospects. In his own small apartment portfolio in Los Angeles, he had one recent applicant run a check on him, to ensure his listing was legitimate.
“This resident is moving here from Montana and renting an apartment sight unseen,” Berlind says. “But I had recently moved offices, so the address on the listing and my email didn’t match. I had to answer quite the battery of questions to verify that I was the actual owner of the unit. Everyone is just on high alert.”
What to Do About It
Apartment pros are attempting to address the application fraud issue through the use of technology, such as Snappt, which looks at the underlying lines of code behind PDF documents submitted during the application process to determine if they’ve been altered, and compares bank statements with known formats from operators such as Wells Fargo to check if they are consistent and match.
Operators like the solution because it not only gives them a backstop, but also takes a lot of the heavy lifting off their teams’ shoulders.
“Residents have to send statements and documents direct to Snappt, who has the proprietary software to determine if documents have been modified,” says Curtis Holder, director of asset management at Charleston, South Carolina–based Excelsa Properties, which runs 1,600 units. “Taking this responsibility outside of the office allows the teams to be unbiased and consistent, eliminating any fair housing issues.”
Others use MRI’s CheckpointID, which utilizes the 2D or MRZ code found on
government-issued IDs to provide real-time verification services for apartment communities to verify driver’s licenses and passports at the very start of the leasing cycle, when an applicant asks for a tour. Other solutions include Knock and Onfido.
Those types of systems, tailored specifically for the multifamily leasing process, go beyond general screening criteria.
“Without these tools, this kind of fraud would likely go by undetected, as it’s entirely different than what is typically identified by traditional credit, criminal, and background checks,” says Page.
Multiple Layers of Tech
At Charlotte, North Carolina–based LMC, which operates 31,800 units, president Todd Farrell has adopted both Identity Verification from RealPage and ApproveShield. “Identity Verification allows us to seamlessly compare applicant data against public records to verify identity, evaluate IP address for authenticity, and identify patterns of reoccurring data submission,” he says.
Legitimate applicants who fail are then given the chance to confirm their identity by answering personalized background questions, such as whether they recognize an address they lived at 10 years ago, or by a personalized code sent to the cellphone in their records. If they still fail, the on-site team receives a notice, and the applicant can present a government-issued photo ID, paired with a recent utility bill showing their name and address. If those match up, a credit check goes forward.
“Since launching this process, we’ve seen a dramatic decrease in fraudulent applications and the use of compromised credit cards, saving us time and money,” Farrell says.
But Also Not Just a Tech Solution
But while electronic tools help, some operators say they don’t go far enough. Take the property manager in the Southeast who’s encountered fraud swarms at their properties.
They say as the technology has gotten more sophisticated, so have the scammers. For that reason, when the operator gets pitches from screening vendors to buy these types of verification tools, they have a set of 10 bogus applications at the ready to feed through the systems. The results, this manager says, have been less than encouraging. “They’re all trying to build the better mousetrap,” the property manager says. “I wish I didn’t have to say this sentence, but there is no better mousetrap.”
At Atlanta-based Stonemark Management, which manages 10,000 units, regional manager Marygrace Navarro pushes her teams to go beyond what’s available electronically. For her, only old-fashioned sleuthing can ultimately combat the increasingly sophisticated means scammers use online.
“We have the ID verification tools to help detect the fraud, but, unfortunately, they’re not enough,” Navarro says. “They’re just not foolproof. You have to pair them with old-school detective methods on the part of the on-site team, like Googling addresses and employers and putting a careful eye to the documents to make sure they’re valid.”
While phone calls to employers used to be standard, many will not release personnel data or take too long to reply in today’s accelerated leasing process.
“You have to be consistent, diligent, and go through everything with a fine-tooth comb,” Navarro says. “You can’t just accept the employment and rental verifications the applicant gives you. You have to invest the time and energy to check it all yourself.”
At Bozzuto, which runs communities in 12 states, the firm has been keeping a list of known bad actors, so if they don’t get in at one property, they can’t just go to the next. “We have created a network of known fraudulent applicants, so we work very hard to prevent people from getting in the first time,” Cooley says. “The most powerful thing we can do is to catch fraud before it impacts our communities and deny the application upfront.”
By using a combination of technology and the diligence that comes from executing on the basics of good leasing management, operators can stand up to application fraud. But whether they can eliminate it, at this point, seems as fanciful as the multitude of fake documents coming in their doors.
