Fraud Goes High Tech

Fraud Goes High Tech

By Scott Sowers

Despite greater awareness of the ongoing challenges with fraud in the multifamily housing industry, the issues continue to grow while being resolved—and fueled—by emerging technology.  

Multifamily housing industry owners, operators or property managers who haven’t been a victim of a fraud scheme are in the minority. “At Habitat, the most pressing fraud issue is the rise in fraudulent lease applications involving stolen identities,” said Wendy Deetjen, VP of The Habitat Company’s Market-Rate Portfolio group. “Applicants are using sophisticated tactics—such as AI-generated documents and forged employment records—to secure units under false pretenses.” Habitat is based in Chicago, where it manages, owns, develops, and invests in mixed-income multifamily rentals, affordable housing, mixed-use projects, and condominiums. The fraud conundrum stretches across building types and is running rampant throughout the real estate world.    

According to a survey conducted by the National Multifamily Housing Council (NMHC), 93.3% of respondents reported experiencing some type of fraudulent activity. The most popular form of fraud reported, registering at 84.3%, is centered on applicants falsifying or fabricating pay stubs, employment references or other income documentation. Renting housing to fraudsters who can’t pay or never intend to pay can lead to writing off the loss.

Per NMHC’s analysis, “Respondents to the survey reported that approximately a quarter of this bad debt, on average, could be attributed to nonpayment of rent due to fraudulent applications.” Fraud grew during the pandemic years as the industry moved to touchless leasing via online applications and the digitization of the approval process, but actual numbers are hard to come by.

Renting by Remote Control

The pandemic’s touch made the concept of renting an apartment without actually walking through the space seem normal. “One of the biggest fraud issues we’ve seen at CRG happens right in the application process, especially in cities like Chicago and with renters who are leasing without seeing the unit in person,” said Louie Colella, Vice President of Leasing and Operations at CRG.  

CRG is a national real estate development and investment firm working with over 220 million square feet of assets. CRG has multifamily developments in Illinois, Missouri, Texas and Alabama. It also counts several university markets in its portfolio, including Madison, Wisconsin; Reno, Nevada; Eugene, Oregon; and Columbia, South Carolina. “During the pandemic, when in-person tours were tough or impossible, we rolled out virtual tours and online leasing tools to keep things moving and make it easier for renters,” said Colella. “That convenience was great, but it also opened the door for fraud.” Colella and CRG’s leasing agents are seeing a steady stream of fake W-2s, bogus pay stubs, and counterfeit IDs used to lease properties under false pretenses by creating the illusion of steady income.  

According to the NMHC’s survey, on average, 23.8% of the respondents’ eviction filings were linked to fraudulent applications and related failure to pay rent. “This in turn leads to higher costs for rental housing providers and, ultimately, the renters they house,” according to NMHC. “The average respondent was required to write off nearly $4.2 million in bad debt over the past 12 months.”  

Fighting the Fraudsters 

Just like everything else, there are now apps, hardware, and software platforms that owners-operators are leveraging to help with fraud fighting. “Online leasing applications are submitted through the property website and integrated into our platform,” said Colella.  A separate platform screens the applicant’s credit, criminal, and background checks to ensure comprehensive vetting. In addition, the onsite leasing team will verify an applicant’s identity by using a system that scans and authenticates IDs and helps stop fraudsters before they even tour a property. “As a final measure, we verify documents using a tool that scans documents from over 2,000 financial institutions and claims to detect 99.8% of edited documents, helping us catch falsified financial information,” he adds.

People are still needed to interpret all that data and the results of the application. The human factor can also come into play during the process. “We also rely heavily on our leasing teams to carefully review each application instead of rushing through them, which really helps keep fraudsters from slipping through the cracks,” said Colella. “The human touch really makes all the difference when it comes to cutting down fraud.”  

NMHC’s survey confirms what’s happening on the ground, as 80% of the survey respondents observed prospective renters misrepresenting information on applications, while 70% reported identity theft, fraudulent ID documents, or use of another individual’s personal information. “This creates both operational and financial risks,” said Deetjan. “To combat it, we’ve embedded identity verification into the leasing process from day one and trained our teams to spot red flags early, helping protect our communities and maintain accurate records.”  

Habitat is also employing third-party tech-based tools to foil fraudsters. “These systems use multi-factor verification to detect inconsistencies before we even approach lease execution,” she said. “We also emphasize continuous training for our site teams to empower them to identify fraudulent behavior with confidence.”   

AI, of Course

Artificial Intelligence plays two roles in the fraud game as it’s used to perpetrate and prevent financial crimes. “AI in general is shaking things up, and it’s a double-edged sword,” said Colella. “On one side, you have fraudsters who are using AI to create incredibly convincing fake documents, like pay stubs and bank statements. They can create fake income or erase red flags. But property owners and managers can use AI tools to fight back. By tapping AI-driven advanced screening technologies like biometric identity verification, automated credit and background checks, and document authentication, we can stop most fraudsters in their tracks,” he said. “When combined with personal interaction and human review, we can stay one step ahead of the bad actors.”  

These advancements in technology and AI make fraudulent applications harder to detect via traditional methods. “In response, Habitat has integrated AI-assisted fraud detection technology that compares documents against verified databases and flags anomalies,” said Deetjen. “Staying ahead of AI-enabled fraud means constantly evolving our technological processes and maintaining strong relationships with our verification partners.”   

The Social Media Connection

The notion of creating false profiles found an early home on social media platforms. The sites can also provide platforms for experienced fraudsters to share best practices of fraud techniques with new recruits looking to live rent-free. Websites that share how-tos on creating phony documents pop up and are then shut down as law enforcement plays “Whack-A-Mole.” But a working knowledge of any image-editing software is often the only thing needed to start the scheme rolling.   

Legal Matters

 Background checks and crime records are still considered to be the backbone of fraud prevention, even as privacy laws are making the process more complicated. Stronger oversight in rental assistance programs also offers hope for bringing fraud into check. “At Habitat, we follow the Fair Housing Act as our guiding principle, ensuring every applicant is treated fairly and without bias,” said Deetjen. “Privacy laws like the Cook County Just Housing Amendment have added steps to the background-check process, requiring individualized assessments instead of blanket rejections based on criminal history.

 “While this adds complexity, our partnership with third-party credit bureaus allows us to maintain effective, compliant screenings that protect both our communities and the rights of applicants,” she said.

The Future of Fraud Detection

As fraud adapts so do the detection efforts. “Clearer standards for digital documentation and improved identity verification—such as secure e-signatures or biometrics—could all help reduce fraud,” said Deetjen. Moving away from paper checks and receipts also offers hope. “Paper-based payments like checks are far more vulnerable to theft, loss and forgery,” said Deetjen. “At Habitat, we encourage residents to use secure digital payment portals, which offer real-time tracking, encryption and automatic alerts for suspicious activity. While money orders are less risky than checks, we believe transitioning to digital payments adds another layer of security for both our property teams and residents.”   

In addition to the fake documents being used to infiltrate and inhabit apartments, NMHC also identified some other scams bedeviling owners-operators. Survey respondents reported that 67.1% experienced unauthorized cohabitants, illegal subletting, or other actions to evade application or the leasing process. Another 62.9% of the respondents reported the use of fraudulent checks or other payment methods.   

The current environment relies heavily on the technology that’s enabling these fraudsters. “Fraud has increased since the pandemic due to virtual leasing, accessible AI tools, and abuse of relief programs,” said Deetjen. “As fraudulent applicants grow more sophisticated, Habitat continues to strengthen prevention efforts through advanced technology, tighter leasing protocol,s and ongoing staff training.” 

The author, Scott Sowers, is a freelance writer. This article was first published by Units magazine, a publication of the National Apartment Association.