Application Fraud Is on the Rise for Multifamily Properties -, Orange County Multifamily Broker, Apartments, 1031 Exchanges

Application Fraud Is on the Rise for Multifamily Properties

Managers of multifamily rental properties are increasingly reporting suspicious activity in applications for units, with 85% of managers polled in a recent Snappt survey saying they think consumers are becoming more comfortable with committing fraud in applying. That’s up significantly from pre-pandemic, when an estimated 66% of applications were falsified. 

Snappt scanned more than one million financial documents and found that one in eight have been fraudulently altered.  The company estimates 11 million fraudulent applications were submitted last year in the US alone.

In a Snappt report documenting the findings, Ellie Norton, Area Vice President for Pegasus Residential, said vetting applications has become “significantly more challenging” since the advent of COVID-19. Fraud was already on the rise prior to the pandemic but has “mushroomed” since, costing businesses an estimated 5.4 trillion globally. Reports of fraud, identity theft and other deceptive behavior ticked up by 67% between 2019 and 2021, according to the FTC.

“There’s a lot of fraudulent documentation out there. It has been on a significant rise in our industry in the last three years,” Norton says, noting that most come in the form of altered bank statements and bogus pay stubs that are tough to spot with the naked eye. And “the challenge with the eviction process is that it takes even longer, post-COVID. When someone moves in based on fraudulent income and then can’t pay rent it takes significantly longer to have them evicted. We’ve had some places where it’s taken over a year for them to be removed.” 

The average eviction costs $7,685 after unpaid rent, legal fees and other charges, and Snappt estimates fraudulent applications cost around $2.8 million per year for a 3,000 unit portfolio. 

Respondents to Snapp’s survey also overwhelmingly said that the roots of most challenges in running their properties could be traced back to issues that “should have been flagged” during the application process. The top of the list: late payments. Nearly three-quarters (73%) of respondents said getting the rent late was somewhat to extremely common, while another two-thirds (66%) said discovering damage to units after tenants left fell into the same category. 

“Some of [the issues] can be attributed to the soaring costs of housing, especially in the last year, where rents have risen anywhere between 15% to 30%,” one regional manager of more than 10,000 units told Snappt. “We know people did not receive 15% to 30% increases in pay. So, to be able to still afford three times the monthly rent to qualify for an apartment is challenging.”

Five out of six respondents, or 85%, said the ease with which fake documents can be obtained online was to blame for these issues, while 78% cited rising rents and the pressure it puts on prospective renters to “stretch” on their applications.  Three-fourths of respondents said eviction moratoria were “somewhat or extremely significant” contributing factors.

“There is that high level of fraud out there,” Laine Gomez, executive VP of asset management at Catalyst Housing in Larkspur, told Snappt. “It’s surprising that it’s that much, but I think technology has just made it so much easier for these documents to get through.”

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