What can I do to help guard against tenant fraud?
Due diligence is a first line of defense in protecting the business from intentional harm from tenant fraud. You should never be in a hurry to fill a vacancy without conducting adequate tenant screening and independent verification of applicant information. An applicant intent on committing fraud is counting on a landlord being too busy or desperate to fill the vacancy to notice inconsistencies in his story.
The most direct fraud control practice to reduce financial loss, property damage, or other harm to the business is vigilance. You must be alert to the possibility of fraud and take adequate precautions for business protection. You need to identify red flag issues, recognize fraudulent acts and thoroughly vet applicants throughout the rental process. Advancing an applicant to consideration for tenancy without adequate screening safeguards can be a costly mistake. Once a tenant has moved in, a landlord must use the legal system to restore possession of the property to the landlord and recover damages caused by the tenant.
You should always follow your stated policies and practices of tenant screening. Tenant screenings are valuable alerts to red flag issues and possible tenant fraud. You must be vigilant to recognize discrepancies, ready to question omissions or inconsistencies in information in the application itself, as discovered during applicant interviews, or through reference verifications. If things seem a little too good to be true, you certainly should check it out. A little skepticism on your part may be the best thing to prevent fraud.
Vigilance includes making sure you stay current with applicable laws and landlord-tenant statutes. Rental fraud can occur because a landlord is unfamiliar or unsure of applicable laws and legal processes. Hesitancy or perceived weakness by the landlord to enforce his standards can allow an applicant with the intent to defraud a landlord to talk his way into tenancy.
Red flags can pop up any time during the interview/application/screening process. A landlord should be prepared to handle inquiries from an applicant who wants the landlord to make a deal which deviates from qualification standards and business practices. Making a deal is rarely a good business practice. An applicant moving on short notice could be a red flag issue indicative of a pending eviction, past due rents, or a cure or quit notice for lease violation.
An applicant’s reason for moving could also indicate a red flag issue. Evasive answers or vague reasons that suggest eviction, past due rents, lease violations, trouble with neighbors, problems with the landlord, or domestic problems could signal potential future problems. If the applicant has a long list of complaints about his current landlord and neighbors, his response should be considered a red flag issue requiring further investigation and discussion.
Tenant fraud can take the form of altered and falsified documents, identity theft, and fictitious identity, as well as intentional omission of data, incomplete data, or misleading data on required application documents.
As a short checklist to help protect your business from tenant fraud, you should always:
- Conduct tenant screening, including background check, credit report, and criminal background check as applicable by statute/ordinance,
- Verify current employment,
- Require proof of income,
- Contact references for previous rental history,
- Inspect all documents supplied for rental qualification for signs of alteration,
- Cross-check application information against the information on screening reports, credit and background reports, and independent verifications,
- Require payment of all fees and deposits per rental policy,
- Conduct all rental practices in compliance with fair housing laws.