Podcast 338: COVID-19 Spikes Rental Fraud

Podcast Host, Andrew Schultz, goes over the latest trend to hit the rental market; fraudulent rental applications. Due to COVID-19, the industry has seen an enormous spike in faulty paychecks, identity theft and more.

Also in this episode, Andrew discusses how to handle tenants who are complaining about noise in a multi-family home. Can the issue be resolved in an orderly fashion?

Last, but not least, we’ll go over charity donations and one case in particular where a landlord asks a tenant to substitute the rent payment with a charity donation. How does that work and is it a good idea?

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Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number 338, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about the increase in rental fraud application. How to handle tenants who complain about noise between apartments and charity donations in place of rent payments. We’ll get to all of that right after this.

Voice Over: (00:22)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:27)
Before we jump into today’s episode. Don’t forget to check out the Rent Prep for Landlords Facebook group. It’s a great free resource for you to network with housing providers from around the country. And if you have a question or situation that you’ve never dealt with, chances are someone in the group has been there before and can lend a helping hand. As of this recording. We’re at 11,811 members. We need your help for the push to 12,000. Check it out today. Over at facebook.com/groups/rentprep. Don’t forget to mention the podcast when you’re answering the onboarding questions. So we know how you found us are in the new segment. This week comes to us from CNBC. Title of the article is “Rental fraud warnings jumped 30% due to the coronavirus pandemic”. This is definitely one. That’s going to be relevant for a lot of us out there right now.

Andrew Schultz: (01:08)
So let’s jump right in here. A sharp increase in the use of online rental applications. Since the start of the coronavirus, pandemic has caused a consequent jump in red flags for fraud. The percentage of so-called fraud triggers detected by TransUnion increased nearly 30% from March to August. According to the credit reporting agency, trans union defines fraud triggers as applicant statutes with failed authentication and or height identified as high risk. They reached a total of 15.2% in August compared with 10.3% over the same period. Last year, what COVID has done is accelerated the industry’s adoption of technologies in the digital environment. They become more contact lists. As this acceleration into the digital environment has occurred. It has also opened up the prevalence of fraud so much more has said my tree Johnson vice-president of TransUnion’s tenant and employment business. As a result, the multifamily industry is now at a higher risk.

Andrew Schultz: (02:00)
Since the pandemic began, the frequency of actual fraud incidents has jumped by nearly 50%. According to TransUnion survey of 82 multifamily executives. Another quarter saw up to 100 instances of fraud in their portfolios. In the past year, while many people were able to flag fraudsters before they moved in 41% said they missed it. And the applicant moved in these fraud cases are largely about faking the identity of the tenant. They use someone else’s driver’s license, stealing someone else’s social security number from the dark web or inventing a new identity entirely known as synthetic fraud. Synthetic fraud involves building a credit profile for a person who doesn’t exist. And then using that profile to open credit cards, to buy merchandise, the rental home then becomes part of the crime, taking this fictitious persona, applying for the apartment home. It all checks out and they get access to an apartment home.

Andrew Schultz: (02:47)
They eventually use it as a drop zone for all of their spend. They will then skip out in the middle of the night. Johnson said it all leaves a landlord holding the bag two and three executives told trans union that they were concerned about fraud growth within their communities with thousands of valid tenants. Now behind on the rent because of the pandemic, this only adds to the burdens of property management companies and adds to the losses of property owners. If you’re trying to evict someone, but that person doesn’t exist. How do you do it? Johnson said,

Andrew Schultz: (03:17)
I’m glad that I came across this article this week because this is actually a really, really relevant thing that we’re seeing happening in the industry right now. A lot of it boils back to good screening, good tenant screening procedures, and we’re not going to sit and delve into all that stuff right now because we’ve done it about a million times before on this podcast. But one thing that I did want to mention is that, yeah, we are starting to see more and more occurrences where fraud is happening, like even in our business. There’s a couple of things that I wanted to point out that’s happened recently here in our business. The most recent one that I can think of is we recently had a rental application that was submitted to our office and the only actual truthful pieces of information on the application were the name, the date of birth and the social security number, and the entire rest of the application was faked.

Andrew Schultz: (04:04)
And I originally thought maybe it was a screener from the state trying to do like a like a pop exam or something like that. But the more I dug into it, the more I realized, no, this was literally just an application that was faked from beginning to end. And obviously, I mentioned that we use Rent Prep for our tenant screening. I’d reached out to the screeners over at Rent Prep and ask them if I was crazy or if they were kind of seeing the same thing. And they looked at the file with me and agreed that it was basically the entire file was, was wrought with fraud. The entire application was basically completely invalid. So I’m glad we caught that. Obviously since obviously, we don’t want to put somebody into an apartment that is wrought with fraud from the get-go. But one other thing that we’ve seen happening more and more in the industry, and this was actually brought up in one of the groups that I’m in on Facebook discussing property management issues was the prevalence of fake pay stubs.

Andrew Schultz: (04:56)
It’s crazy how convincing fake pay stubs can look nowadays. And actually, somebody had posted a picture of three different fake paystubs. But they all had some common, you know, some commonalities to them and things like that. But it’s very easy for someone to generate these fake pay stubs and things like that, which is why you need to be verifying income, not just via based hub, but making sure that that person’s actually employed, they’re looking at a bank statement or something along those lines, just to make sure that the income is truly there. So definitely make sure that you’re taking care to ensure that you are screening tenants thoroughly is basically what I wanted to end this on. This is one of those situations where it look, they literally said it at the very top of the article, 41% of these fraud flags were missed and the applicant moved in.

Andrew Schultz: (05:42)
If you’ve got a good screening procedure in place, I think that you’re going to reduce that 41% substantially. So that would be my recommendation. Get into a set of criteria that you know, that you can operate from and that work in your market and that don’t contain any sort of discriminatory criteria and things like that. And your life will be so much easier as a landlord. If you’re at the point where you have a staff, if you have a small property management company or something like that, make sure that your staff is screening to the level that you need them to be screening to. You know, don’t let them Slack on making sure that everything is squared away, make sure that every I is dotted and every T is crossed. Because at that point you have a fiduciary responsibility to your client. You know, when you own the property directly yourself, your fiduciary responsibility is obviously to yourself. So you would want to be doing the same thing. So just take that into account, make sure that you’re screening every tenant every single time. And don’t wind up in a situation such as this.

Voice Over: (06:35)
Water cooler wisdom expert advice from real estate pros.

Andrew Schultz: (06:43)
Dealing with noise transfer can be a gigantic headache for a landlord. I can remember back when I was a tenant, most, every apartment that I lived in, where I had a neighbor living above me, I could definitely hear them walking around and sometimes a whole lot more, but that’s basically the premise behind today’s water cooler wisdom. So let’s jump right in. I have a multifamily home and I live on the first floor, a high-maintenance tenant on the second floor. He lives with his wife and a child, and they’re on their second-year lease. There’s a single girl that lives on the third floor. That’s been here for about three months. All three floors have hardwood floors. And the second floor is driving me crazy and complaining about the third floor, walking around, upstairs, going up and down the stairs. And doesn’t stop. I talked to the third-floor tenant twice about being more careful going up and down the stairs, walking around with slippers on to minimize the noise and et cetera.

Andrew Schultz: (07:29)
Both times that we spoke, she was very respectful and willing to help today. I offered to buy a carpet for the bedroom. She said, no, but she will buy one herself. Any ideas on how to resolve this would be greatly appreciated. And this one comes to us via the Rent Prep for Landlords Facebook group. So we have a couple of different things going on here. The first thing is we deal with noise issues constantly in a lot of our buildings because the bulk of our inventory is older. And when I say older, I mean, you know, 1900 to 1920 turn of the century type stuff. So we deal with a lot of issues with hardwood, floors that creak, and things like that. It’s a pretty common issue for us here. And the first thing that I would recommend to you is understand that this is primarily a tenant-to-tenant issue and part of living in an apartment.

Andrew Schultz: (08:14)
You know, it’s, it’s part of being a good neighbor is understanding that you know, you’re going to hear noise from other apartments and the other apartments are going to hear noise from you. It’s just kind of one of those things. It’s a fact of life when you live in a property that was built, you know, long time ago, where things have shifted and settled and Creek and don’t have the insulation factor and things like that that perhaps a new build would have. So to your second-floor tenant, I would recommend talking to them a little bit and reminding them that when they moved into the home, they knew that there was going to be another tenant up above them. And that fact hasn’t changed since they moved into the apartment. The third-floor tenant obviously has the right to walk up and down the stairs and walk around their apartment.

Andrew Schultz: (08:54)
And the second tenant is going to have to have some kind of understanding that people have the right to move around their apartment as they see fit for the third-floor tenant. There’s a couple of options here. Again, the third floor probably needs to be reminded about being a good neighbor and trying to limit the amount of noise transfer between apartments and things like that. As much as they can, but obviously again, as hardwood floors, there’s going to be some sort of noise transfer from one unit to another. I think a carpet is a good place to start. If the tenant doesn’t want to buy a carpet, then I would recommend that the landlord buy a carpet and just try to mitigate the issue to save themselves some of those headache. There are a couple of other mitigation techniques that the landlord can look into here in terms of noise buffering or something along those lines to reduce this.

Andrew Schultz: (09:37)
The first thing that I would recommend would obviously be the carpets like we had talked about above. And the reason that I would recommend that first is because it’s the cheapest of the solutions that we’re going to cover here by a long shot. The next recommendation that I would have would be see if you can do some sort of a blown-in insulation between the floors, maybe some sort of an acoustic paneling or something like that on the ceiling of the second-floor units, and then cover that with drywall or a drop ceiling or something along those lines. Essentially what you’re doing is trying to add more buffer between the source of the noise, which is the person walking around upstairs, and the place where the noise is coming out, which is the ceiling of the second floor. So you’re basically just adding more layers to absorb that sound.

Andrew Schultz: (10:19)
There, obviously, that comes with a pretty substantial expense, which is something that you’re going to have to take into account and determine if that’s something that you even want to do as a property owner. So unfortunately the situation here is one that unless somebody spends some kind of money, chances are the fact is it’s not going to get resolved either the second-floor tenants going to learn to live with it, or the second or third-floor tenant are going to wind up moving out at the end of their lease term because there’s going to be so much animosity between the two tenants that eventually somebody is just going to decide to move. So my recommendation would be, try to start with the carpets if the tenant’s willing to buy the carpet. Great. If not, you might want to buy the carpet as the housing provider, just to make the life of the second-floor tenant a little bit easier and try to resolve the issue.

Andrew Schultz: (11:02)
But ultimately whenever a noise issue comes to our office, we typically tell the tenants that they’re responsible for kind of figuring it out between themselves as part of being good neighbors to each other one tip for the future that might help you is to add language into your lease, to alert tenants, to the fact that they are aware that there are going to be noise transfer issues, but from one apartment to another, you know, get an acknowledgment from the tenant that they understand the fact that they are living in an older structure, or they are living in a structure where there’s going to be noise transfer from one apartment to another. I mean, unless somebody is up there like banging pots and pans around and throwing stuff on the floor if it’s just normal walking, it really shouldn’t be that big of an issue for these tenants to figure it out on. Hopefully, you’re able to resolve it without losing a tenant, but ultimately that might be the, what ends up happening here. So best of luck to you and let us know how this one works out

Voice Over: (11:56)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (12:04)
More often than not. I feel that housing providers are doing good things for the world. We’re out there every day, trying to grow our business, trying to help the tenants that we serve, and trying to help the communities that we live in. But every once in awhile, we just completely missed the Mark. And I think that that’s really what we’re looking at here in today’s forum quorum. This one comes to us via at the landlording subreddit and reads out as follows. So I primarily live off the profits from one rental property and also live cheaply and give a lot back to charity. I was thinking of starting a new annual tradition where I allow my tenants to forego their rent for December. If they donate the amount to a charity of their choice, seems like it’s good for both sides. They get to feel good and make a positive difference in the world.

Andrew Schultz: (12:46)
And I get to help charities myself, but in a more tax advantageous way, since even though I donate a lot to charity, I wouldn’t ever be able to claim higher than the standard deduction on taxes. The alternative would be me making rent, normally having to register it as profits and then donating it to a charity myself, but also paying taxes on it. Any thoughts on this? Is this a good or a bad idea? Do I misunderstand how it works for taxes? Do you think it would make tenants happy or ungratefully feel why don’t you just let me off this month’s rent completely? I was planning to just ask for an email receipt from the charity and was planning to just allow them any charity of their choice. Although there may be some morally questionable charities or political groups I might disagree with. So retain the right to veto.

Andrew Schultz: (13:26)
Like if it was the church of Scientology or something, I don’t even know where to begin on this one. If you’re a housing provider and you feel that it’s important to donate to charity, do it on your own time and do it with your own money. Don’t force your tenants to be in a situation where they have to choose a charitable organization that you have to approve. And, and then, and then make a donation, don’t know, just don’t do this, do your charitable giving as you see fit. And in my opinion, and this is strictly my opinion, nobody needs to know about your charitable donations. It’s meant for you to feel good about donating to the charity that you choose giving to an organization that you feel strongly about. And frankly, I think that it should be done quietly. We donate to several different causes here at Harriton Buffalo and not once will you see something pop up on our social media about who we’re choosing to donate to or why we’re choosing to donate or something along those, we just don’t do it.

Andrew Schultz: (14:29)
If you’re going to do charitable giving, do it, as you see fit, don’t try to force something like this on your tenants. It’s not fair to them in any capacity to say, I want you to take the money that you are going to give me for rent and give it to a charity instead. And by the way, I get to re veto it. If I don’t like your, your choice of charity or your choice of organ, no, no, it just doesn’t work that way. Collect the rent process, the rent as income, the same as you would, any other month’s rent deal with whatever the tax implication is and treat this like the business that it is. I understand that you’re talking about being able to live off the profits from one rental property and this, that the other thing treat it like a business because it is a business.

Andrew Schultz: (15:15)
If you want to do charitable donating as a business, do your charitable donating as a business, but don’t put your tenants in a situation where they have to do charitable donating on your behalf. If you really feel the need to do something like this, just give your tenant a free month of rent. You know, given where we’re at in 2020, if you really wanted to be charitable in that capacity. I think that just about any tenant out there right now would gladly take a month’s reprieve on their rent in the middle of a global pandemic. Like if that’s what you want to do, maybe consider doing it in that capacity or something along those lines. Or if you have an organization that you want to donate, that month’s rent to collect the rent from the tenant and donate to that charity, but don’t put your tenant in the middle of a situation like this.

Andrew Schultz: (15:58)
Don’t try to force a, you know, a moral standard or an ethical standard or a belief system on somebody that you have to work with on a monthly basis in, in a situation such as housing, it’s just simply not worth it. I hope that you don’t pursue this for your own good for your own benefit. This is one of those situations where we as housing providers or this individual as a housing provider has completely missed the Mark. So hopefully they find a little bit better way of approaching this situation and, and don’t move forward in the capacity that they’re planning to. So that pretty much wraps things up for this week’s episode of the red prep for landlords podcast. Thank you all so much for listening. We really do appreciate it. Our goal with the podcast is to help as many people as possible and make educated decisions when it comes to real estate, the best way for you to help us reach that goal is if you heard anything in this week’s episode or any other episode, that’ll help someone, you know, please share the episode with them.

Andrew Schultz: (16:50)
If you’re looking to get in contact with me, I can be reached over at what’s drew up to.com from there, you’ll find links to everything going on with me over at own buffalo, as well as other projects that we’re working on. There’s also a contact form over ownedbuffalo.com, or you can message me directly. If you’re looking for top tier tenant screening services, don’t forget to head on over to rent prep.com. They have multiple products to choose from including a tenant paid option. If you’re over 50 doors, ask about the enterprise-level programs and pricing. We’ve been enterprise users of Rent Prep for years now, over at owned Buffalo. And it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. I’ll be back next Thursday with an all-new episode you won’t want to miss until then. I’m Andrew Schultz with owned Buffalo for rentprep.com. And we’ll talk to you next week.