Rise in Rental Fraud

It’s always puzzling to me when a landlord goes through the trouble of collecting information from a potential tenant, and then doesn’t bother to verify it before handing over the keys. About a third of residential rental applications include some form of fraud. Sometimes it’s fairly harmless, like pretending a senior in high school is 17 years old rather than 18, because having fewer legal adults simplifies the application. Other times, it’s not harmless, like when people lie about their employment or their income.

Interestingly, applicant fraud in the residential rental market has increased 9 percent month over month since the COVID-19 crisis hit, and this is worrisome because studies show that people who falsify information on their rental application are more likely to cause all sorts of problems. They are more likely to engage in criminal activity, which can damage the landlord’s reputation and value of the property, as well as the value of other properties in the neighborhood. Would you want to buy or rent a home next door to a drug dealer? Neither would most people.

They are also more likely to miss rent payments, damage the property, either through negligence or intentional action, and engage in behaviors that, while technically legal, aren’t appreciated by those around them (and may not be permitted according to the lease agreement). At some point, the landlord is forced to evict the tenant and find a new one, an expensive and time-consuming process. It costs about $750, including attorney’s fees and court costs, and there’s the opportunity cost, too. Opportunity cost is an economics term that refers to the cost of a missed opportunity. Each time a landlord chooses a bad tenant, there’s the opportunity cost of missing out on a reliable tenant who would pay on time and take good care of the property.

So, what’s leading to the increase in fraud? Sadly, sometimes when people feel desperate about finding a place to live, they fib to make themselves look like a more attractive tenant. And with technology, it’s easier than ever to cheat. People create phony letters of recommendation on letterhead they created by copying a company’s logo from the internet. People can also alter legitimate documents with computer technology.

Other changes that make fraud more common are related to the gig economy. More people are self-employed, so landlords cannot contact an objective third party to verify income. Finally, there are recent changes to legal statutes that make it harder to do background checks early in the application process.

As part of the application, it’s common for landlords to ask for character references as well as the name and contact information for the applicant’s current landlord. The problem here is that anyone can serve as a character reference (including someone who owes the applicant a favor), and the current landlord may want the applicant out of their hair, so they’re happy to paint a rosy picture of the tenant.

That’s why it is more important than ever for landlords to take the time required to learn as much as they can about a prospective tenant. Ask for the name and contact information for the last two landlords. Ask whether the landlords would rent to this person again. Ask former employers whether they would rehire this person. If you don’t hear an enthusiastic yes, consider it a no.

By the way, tenants, check out your landlord as well. This should be a two-way street. Ask friends and neighbors what it was like to rent from your prospective landlord. Was the landlord responsive when problems arose? Ask if they would rent from them again. If you don’t hear an enthusiastic yes, consider it a no.

If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 40 years.

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