Tenant Fraud On The Upswing
by Lew Sichelman
Lake Shore Club in Tampa, a 650-unit, market-rate property of rental townhouses and two-story walk-ups, doesn't usually attract the kinds of people who would lie on their applications to get an apartment. Yet, two or three times a month, property manager Karen Clifford catches someone misrepresenting the facts. Most often, says Clifford, a former loan officer who switched over to property management seven years ago, a less-than-honest prospect will enter a bogus work phone number or an entirely false work history. Sometimes, they use a fake social security number. And every once in a while, they lie about their previous rental situations. Welcome to the wonderful new world of leasing, a cosmos in which rental application fraud is running rampant, yet receives little more than passing attention from the authorities. Indeed, while mortgage swindles capture all the headlines, tenant fraud appears to be far more prevalent. Most recently, in a story that made the front pages of many newspapers throughout the country, the FBI reported that mortgage fraud has become a "national epidemic," with its case load jumping five-fold since fiscal 2001, from 102 investigations to a staggering 533 in the first three quarters of fiscal '04. But according to a Federal Trade Commission study on identity theft, no fewer than 200,000 persons applying to rent an apartment in 2002 used assumed names and identities and/or camouflaged their past indiscretions to avoid rejection. One reason mortgage fraud is a more appealing news item is that it is a federal crime to lie on a loan application. Tenant fraud, on the other hand, may not even be illegal, depending on the jurisdiction. But if it is, it's far more likely to be a local misdemeanor in which the perjurer receives little more than a slap on the wrist, unlike a serious crime that comes with a fine and/or time behind bars. Of course, there's no way of knowing how many prospects fib on their rental applications and get away with it. But Jeff Cronrod, president of Fidelity Information Corp., a Pacific Palisades, Calif., company which operates TenantAlert, an Internet-based tenant screening service, as well as one of the largest landlord collection agencies in the land, offers this telling statistic: "Nearly one in 10 landlords who try to recover delinquent rents are finding their hands are tied because tenants used Social Security numbers they either invented or took from deceased people, their relatives or even their own children." To put that number in its proper perspective, Cronrod adds, just one in 30 landlords experienced the same difficulties trying to collect back rents only a few years ago. In other words, the known incidences of tenant fraud has jumped three fold in recent years. Another statistic that no one seems to have a handle on is how much it costs to evict a tenant who shouldn't have been allowed occupancy in the first place. The best figure spokesman Michael Tucker of the National Multi-Housing Council in Washington, D.C., can come up with is $3,000 on average. But Rick Arbore, vice present of national sales at RentGrow, a tenant screening agency based in Waltham, Mass., estimates that on average, landlords can count on four months of lost rent every time they must boot someone plus $1,500 in legal fees if the services of an attorney are required. Of course, the costs vary, depending on the jurisdiction. In some places, evictions take only a month. In others, though, nine months is the norm. But however long it takes, the cost to oust a non-paying tenant is on top of normal turnover costs, which tenant retention expert Mindy Williams, president of RentandRetain.com, pegs at $2,200-$3,200 per unit. No wonder, then, that more and more property managers like Karen Clifford in Tampa are turning to screening services like TenantAlert, RentGrow and hundreds of other local, regional and national firms. Indeed, Nevel DeHart, executive vice president of First American Registry-SafeRent, a Rockville, Md.-based agency which counts some 30,000 clients, including some of the nation's largest apartment owners, says there might be more than a thousand firms like his if small, mom-and-pop companies serving only a few landlords are counted. They even have their own trade association, the Washington-based National Association of Screening Agencies. The services offered by screening agencies vary widely, depending on their size. Among other things, they run credit reports, verify social security numbers, match phone numbers, and search federal, state and county criminal records, felony as well as misdemeanor. Some also search databases that list civil judgements, "forcible entry" evictions and landlord-tenant filings. And at least one searches lists of known sex offenders. In most cases, screening is done electronically, and depending on how extensive the search, results can be received in a few days, if not a few hours or even minutes. One of the newest wrinkles offered by the more sophisticated agencies is a "scoring" model system similar to those used by mortgage lenders to judge applicants for home loans. First American's "RegistrySCOREX" model, said to be the first ever developed specifically for the multi-family sector, looks at the company's comprehensive, proprietary database of more than 33 million landlord-tenant eviction cases as well as rental performance histories, payment trends on millions of renters nationwide and standard credit information. TenantAlert's MatchMaker program evaluates each applicant according to 20-plus parameters reflecting the landlord's preferred tenant profile, returning a "recommend" or "not recommend." And a separate, credit-based predictor score evaluates the credit information provided by one or more of the three major credit repositories, translating it into a numerical score indicating the risk of renting to a particular applicant. "I was in banking for over 15 years, so I came into this business knowing a great deal about credit checks and I'm pretty versed on reading credit reports," says Clifford. "But these products make my job 100 times easier. They are very comprehensive and can't be 'piecemealed' together. I wish I would have had them at other place I've worked." |
