Podcast 366: How to Spot Fake Paystubs

In this week’s episode, Podcast Host, Andrew Schultz, discusses the rise of fake paystubs and the impact it can have on landlords during the rental application process.

What happens when you find a highly-recommended painter to fix up your rental property, but they don’t have something like business liability insurance? We’ll go over the best practices for hiring independent contractors.

Discover the story of a tenant that signed a $10,000 contract to have a rental property bathroom remodeled. Oh yeah and all without telling the landlord. Yikes! Listen in to the podcast for details.


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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 366, and I’m your host Andrew Schultz. On today’s episode, we’re going to be talking about best practices when hiring independent contractors, tenants renovating your rental without permission, and how to spot fake pay stubs. During the rental application process, we’ll get to all that right after this.

Voice Over: (00:24)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:29)
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 a situation that you’ve never dealt with with over 12,500 members, chances are someone in the group has been there before and can lend a helping hand if you haven’t checked it out yet, do it today. Over at facebook.com/groups/rentprep. And don’t forget to mention the podcast when answering the questions. So we know how you found us.

Voice Over: (01:01)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (01:09)
This week’s forum quorum comes to us be other Rent Prep for Landlords Facebook group. This is an interesting one on how to get set up to work with an independent contractor. What are the steps that you should take before you get involved with a contractor to do work at your property? Let’s go ahead and take a look here. I’m hiring a painter to paint the entire exterior of my rental. Before I list it for sale. Number one, would you hire a painter that doesn’t have business liability insurance? What, if anything, additional would you do to protect yourself? And two, would you write some sort of contract with a painter? The painters I’ve talked to so far, just go off written quotes and verbal agreements to do the work. And again, this one comes to us via the Rent Prep for Landlords Facebook group. So dealing with contractors or we call them vendors for the most part dealing with vendors is one of the most common things that you’re going to be doing during the ownership or management cycle of your rental property.

Andrew Schultz: (02:00)
Having a good process in place to work with vendors is going to be super, super important to ensuring that your projects get completed and get completed successfully. You have to make sure that you’re working with an insured vendor. I know that there are people all the time who will have a buddy come over and do the work or this, that the other thing. And anytime you do something like that, you’re taking on some risk and it’s up to you, what your risk profile is, what your risk tolerance is, but from where I’m sitting, I’m a third-party property manager. I manage property on behalf of other people. There’s no such thing as working with an uninsured vendor for us, it’s just too much of a risk because we’re working on somebody else’s property. So we require general liability insurance at a minimum for any vendor that comes to work with us and their general liability insurance policy should also list us as an additional insured.

Andrew Schultz: (02:51)
If they’re doing maybe just one job for us, they’ll do an additional insured just for that one specific job. But if you’re working with a, that you’re going to be working with for an extended period of time, for instance, you have a handyman that you’re going to be using on a regular basis or your go-to plumber or something like that. Those vendors should be listing you as an additional insured on their general liability insurance policy as kind of a blanket. And they can do that. They can put a blanket additional insured on the policy to cover any job that you might have at any job site you might have. So if you have multiple properties, you’re covered under that one blanket, additional insured for that vendor. Generally speaking, we like to see the blankets because we use our vendors all over the place, but if you only own one rental property, and you’re only having this painter come out one time just to buy the job, additional insured would be fine.

Andrew Schultz: (03:41)
And their insurance company should be able to handle that for them without too much difficulty. The vendor might see a small bump in their premium, maybe 50 or a hundred bucks over the course of the year for that additional insured. And the one thing that I would say is if they do come back to you and say, Hey, it’s going to cost us X to add you as additional insured, be willing to pay that it’s usually not a huge sum. And it adds so much protection to you that if somebody brings it to our attention, I generally don’t have an issue with just springing the extra 50 or a hundred bucks to make sure that we’re protected. Is it really a cost that should be borne by the vendor? Yeah, absolutely. But they’re just going to write it into their invoice anyway. So it’s one of those things that if it comes up, just handle up moving forward from that, if it’s a larger company, they also need to have, and by larger company, I mean more than one person anything that’s more than just one guy doing jobs.

Andrew Schultz: (04:28)
If it’s a larger company, they also need to have workers’ compensation, insurance, disability, insurance, unemployment coverage, et cetera, et cetera, et cetera, and all of that’s before you even get into any actual licensing to be a contractor. So there’s quite a few steps that a company needs to jump through before they can go out and just start doing work at a very minimum. If you’re using a one-man band to come out and paint your property, they should have general liability insurance and you should be getting added onto that insurance policy as an additional insured at a minimum. So all of that said general liability is a good place to start. If they don’t have the general liability insurance, they definitely don’t have any of the other stuff. The comp, the disability, unemployment, et cetera, make sure that you have the general liability insurance. That’s, what’s going to help you protect yourself in the event that something happens at your property at, during the course of the job.

Andrew Schultz: (05:18)
The next tip that I would have for you is get a w nine upfront before any payment is delivered to the vendor. If you’re paying this vendor over $600, which it sounds like you’re going to be, if you’re having a whole house painted, you’re likely going to need a 10 99 that a vendor at the end of the year, you can talk to your accountant for some more specifics on how the 10 90 nines work, but definitely get that w nine on the front end, before the job starts. The reason I say that is because it’s a lot easier to collect information from somebody who you haven’t given money to yet, once you’ve paid them that full boat and they realize that they might have to pay taxes on that money, they’re going to be a lot less likely to want to fork over a w nine.

Andrew Schultz: (05:56)
So my recommendation is get your w nine out of the way, right at the onset, right along the same time as your insurance. And then that way, both of those are taken care of, and you don’t have to worry about them, get a written estimate, make sure it’s specific, you know, everything should be specified the start and end date of the project, the price of the project, the payment terms, you know, what is due when and how much is due when the paint colors what’s being painted, walls, ceiling trim, the number of coats that are being painted. If they’re doing any sort of nail fill-in or wall repair, anything like that, the bottom line is if it ain’t written it ain’t happening. So get it in writing. And once you agree to that estimate in writing move forward and get the contract in writing as well, both of you should sign off on the contract, you and the vendor.

Andrew Schultz: (06:43)
And at that point, it’s just follow the terms of the contract. The vendor is going to come out and do the work. You’re going to pay the vendor in accordance with the contract. Everybody’s going to be successful here because you’ve taken the time to make sure that all of the expectations are laid out on the front end. So that would be my last tip. There would be set those clear expectations on the front end, make it easy for everyone to operate, make it easy for everyone to be successful in whatever it is that you’re doing. I mean, I understand that this is a paint job, and it seems like it’s very straightforward, but making sure that you’re being specific on your contract and on your estimate, paperwork will make it a lot easier for everybody to understand exactly what’s expected of them. Some things to watch out for anybody that wants all cash payments.

Andrew Schultz: (07:25)
I think that we’ve pretty much covered that at this point somebody that wants all cash payments, probably not going to be the best vendor for you, somebody that has no insurance. I’m also not going to be the best vendor for you. In most instances, somebody that doesn’t want to put anything on paper or can’t write an estimate or a contract or an invoice or whatever the case may be. Somebody that’s not willing to put things on paper, definitely not the type of person that you want to be working with. Somebody that doesn’t communicate clearly. You know, it’s communication, basically, all of this boils down to communication. This entire segment boils down to communication. And if you’re working with somebody, a vendor that can’t communicate clearly with you and you can’t get those expectations across, it’s going to be a bad time. So my recommendation here is to work with professionals. I understand that working with professionals costs a little bit extra. I get it. Cost consciousness is one of the most critical things in rental properties and in property management. But working with professionals might cost you a little bit more. But when something goes wrong, having those insurances and contracts to fall back on versus trying to do this whole thing with verbal agreements and cash transactions, at least it makes it a little bit easier to sort the whole mess out at the end of the day,

Voice Over: (08:37)
Cooler wisdom expert advice from real estate pros.

Andrew Schultz: (08:44)
Our water cooler is wisdom. This week has to be one of the craziest stories I’ve ever come across in the property management world. It’s, it’s definitely up there. I would say probably top 10 of the craziest stories I’ve heard in the property management world. Let’s go ahead and jump in here. I found out today and I’m recording this in the month of November. So all of this is October, November timeframe. I found out today in November that the tenant had the whole bathroom gutted, the shower base replaced and all new tiles replaced at a cost of $10,000. Without my knowledge, he signed the contract without telling me in September hate the down payment himself in September. The whole renovation occurred in October. I’m still without my knowledge and was completed in October. Now, today in November, the contractor contacted the tenant asking about past due payments.

Andrew Schultz: (09:33)
And finally, today the tenant contacted me to fill me in on all these details. He’s asking me to pay the contractor, the remaining money and pay him back for the down payment to be clear. My name is not on any contract nor did I ever give any permission. What is my remedy here? Yeah, this is gotta be one of the most absolutely crazy stories I’ve heard in awhile. I mean, we’ve all had tenants make small improvements without approval before but I’ve never had a tenant gut and renovate an entire bathroom. That’s pretty insane. I’m going to preface this entire segment by saying I’m not an attorney and you really, really need to consult with your attorney on this. There’s quite a few errors or screwed-ups that took place here. The reality of the situation here is that the tenant is responsible for these costs.

Andrew Schultz: (10:18)
They signed off on the contract and approved it without your authorization or knowledge. You need to tell the tenant to pay the contractor, and you need to tell the contractor to collect their payment from the tenant. None of this work was authorized by you. Your name’s not on any of the paperwork. The contractor screwed up here by not verifying the ownership of the property or not getting something signed by you authorizing that this work should be completed. Simple check of the tax records, which are free for public access could have saved this contractor, the massive headache that they now have as well. The reality of this situation is that the contractor likely can and likely will put a mechanic’s lien against the property. If he winds up going unpaid, regardless of who signed off on the work which means that your property is now going to be encumbered.

Andrew Schultz: (11:04)
If you want to sell it, refinance it, whatever the case may be. Generally speaking, the contractor is going to be able to place that lien, even if it wasn’t you that authorized that work at least here in the state of New York. And I’m pretty sure that that’s common in most areas of the country. One of the most common unauthorized work issues that we see is a satellite dish installations. The contractor is supposed to get a signed letter from the property owner or the property manager before they start they don’t ever do it. They’ll just go out there and bang a satellite dish up on a roof. And it causes problems when the roof starts to leak. After, you know, the, after the satellite dish inevitably starts to move back and forth from being hit with wind or whatever. Eventually, the roof is going to start to leak.

Andrew Schultz: (11:45)
The problem is the contractor didn’t do the right thing and get their sign letter on the front end. So they don’t do it. They throw a new roof up there, it causes issues. And it turns into a headache. We actually had this happen on a brand new roof. It was less than a month old. The tenant ordered the satellite dish to be installed without our permission. And the vendor completed the work without getting a signed authorization letter from us because that vendor didn’t have the authorization. They had to come back out and move the dish off the roof, and they had to pay for the roof repair. They then turned around and went back after the tenant for their costs. I don’t know if they ever got their cash back out of the tenant or not. Maybe it went on their service bill. I don’t know, but it wasn’t our problem.

Andrew Schultz: (12:25)
At that point, we took ourselves out of the situation and put it back between the contractor and the vendor after our roof was fixed. All of that said, the next thing I would be looking to do at this point would be to evict that tenant. I don’t think we need to go into a lot of detail here on the various lease violations that occurred. And I don’t think too many people would argue against this course of action, even if the tenant makes right and pays up, I’d still be looking for them to leave. It’s such a massive violation that I wouldn’t be able to just move past it. It’s one of those things, you know, that’s a bridge too far, if you will. So at that point, you know, you’re going to be dealing with the eviction process in your area. You may still be under some sort of a moratorium which further complicates things, but this is definitely a situation that needs to be run by an attorney.

Andrew Schultz: (13:13)
You need to talk to an attorney about this, to see what their recommendation would be here. The worst part of this entire situation is that you’re basically forced into a situation where courts and attorneys are going to be involved. Yeah, there are a couple of paths that don’t involve courts and attorneys, but I don’t see it going in that direction just based on the information presented here. It’s bad for everyone. When we get to the point where courts and attorneys are involved, it’s expensive for everyone. When we get to the point where courts and attorneys are involved, if there’s a negotiation to be had here, I’d look for that approach first. But I just keep circling back to the fact that the tenant is going to have to pay up to that contractor. I don’t really see any way around it. It’s certainly not your responsibility, but all that said if the tenant doesn’t wind up paying that lien is still going to wind up against your property. And you’re still going to get stuck with it. At the end of the day,

Voice Over: (14:04)
Feet on the street, real stories from real property managers.

Andrew Schultz: (14:13)
Our feet on the street segment this week is all about fake pay stubs and how to find them, how to prevent them and things of that nature. This is really starting to become a much bigger issue nationwide, and we’ve started to encounter it here in our office as well. Let’s go ahead and jump in here to take a look. This one comes through us via the landlord subreddit. I just approved an tenant application. They have sparkling credit, hardly any debt, great income. The only thing was her credit history only went back three years and one of her credit reports still had an old address upon further inspection, some stuff didn’t add up. She provided a pay stub that seemed to be lacking enough detail, be legitimate. I found a tool online to recreate a pay stub for laughs. I plugged her info in didn’t even bother to change the taxes or anything.

Andrew Schultz: (15:00)
In five minutes, I had an exact replica of the pay stubs. She provided needless to say, I’m not going to be moving forward with the application. I would encourage everyone to check out the tools online and others like it to help spot fraudulent pay stubs. These can seem very legit at a first glance. So as I had said at the top of the segment there, yeah, fake documentation is becoming a huge issue right now in the industry. The best way to combat fake documentation is to screen everything thoroughly and verify it whenever possible. I can’t say this enough. There are so many people that skip steps when it comes to properly screening their tenants and it winds up coming back to bite them. Don’t be one of those people take your tenant screening. Seriously. I’m speaking specifically on employment. Many employers will no longer verify employment status or really anything about their employees anymore.

Andrew Schultz: (15:48)
It used to be that you could call and talk to a company and they would typically give you, you know, whether an employee was working there. Full-Time, part-time their wage information when they started stuff like that, most companies won’t even do that anymore. Some companies won’t even tell you if somebody works there, a lot of companies have outsourced this to a company such as the work number or an equally awful service, where you have to try to verify using a third party. Those are always a disaster and they come with additional fees. Some companies will at least verify employment status. If you call and talk to them, but my recommendation is don’t use the phone number on the application, go ahead and Google the company and call the main number and then ask to speak to the HR department directly. Oftentimes on the application, you’re going to get a supervisor phone number.

Andrew Schultz: (16:35)
That’s a work friend of the applicant, and that person may be willing to let’s say, bend the truth a little bit to help their friend get an apartment. So call and talk to the HR department whenever possible, try not to speak to a tenants or applicant’s supervisor, because you’re probably not getting the full story by talking to their supervisor. You want to talk to the HR department. So in the question, it was mentioned that there are services out there where you can get fake pay stubs and things like that. It actually goes a lot deeper than that. There are services out there that will generate not only just a fake pay stub, but they’ll also give you a fake landlord, reference, fake employment references, whatever you need to fake somebody out in order to get into an apartment. There are literally services out there that will help you fake everything to get into an apartment the entire step of the way.

Andrew Schultz: (17:21)
So your screening has to evolve and become stronger. Otherwise, you’re going to wind up placing a tenant based on falsified information. And that’s going to turn into a mess really, really fast. Obviously, you’re listening to the Rent Prep for Landlord’s podcast. I’m going to let you know that Rent Prep does offer an income verification service as part of their credit and background check offerings, which works by tying to the applicant’s bank account to verify their true sources of income. This eliminates a lot of the guesswork involved with manual income verification. It also works for all types of income verification, such as employees with normal checks. Self-Employed people, gig economy, income like Uber and Lyft, retirement income, social security. It would all be picked up by that software. So that might be an option if you don’t want to do the manual process of actually verifying income, that would be a good option.

Andrew Schultz: (18:12)
And you could tie it right into your existing credit and background checks. If you didn’t want to go that route and wanted to complete your income verification manually then request that the applicant supply their pay stubs for the last 30 to 60 days. And now you can kind of compare the information from one pay stub to another, to see if it makes sense, or if anything stands out as a red flag, some of the most common red flags that I’ve seen are things such as using the same check number on multiple stubs. So like they’ll literally have three pay stubs, but they’ll all have the same check number on them. That’s a big red flag dates not lining up such as the start and end date of a pay period. You know, maybe they have a one-week pay period and then a two-week pay period, something doesn’t line up that way.

Andrew Schultz: (18:55)
Or it’s not a full pay period. Like it’s only a partial week or something like that. Watching those dates and looking at a calendar will help you catch a lot of things right off the bat. Sometimes you’ll see the date of the check. Won’t be correct. For instance, it usually tells you, you know, the pay period start and end, and then it tells you the date of the check. Sometimes you’ll find that that doesn’t add up correctly. Sometimes you’ll just get stubs that seem to be incomplete or missing a lot of information. We actually had somebody submit a fake stub to us and it didn’t even have a company name on it. Like they were literally trying to submit a fake pay stub without even putting the company that the pig face up was supposed to be from on it. So, you know, pay stubs with direct deposit can be verified using bank statements which is actually exactly what Rent Prep offers with the income verification service.

Andrew Schultz: (19:43)
But if you’re doing it manually, you could take that pay stub that shows a direct deposit, and you can take the bank statement and compare the two to make sure that the, the income actually matches and is going into a bank account. If you really wanted to go to the next level, you could request tax statements which we will do with our self-employed applicants w that will certainly flush out any sort of a fake pay stub by requesting tax statements, because you’re getting the same information that they supplied to the IRS. So if they’re willing to lie to the IRS, they’re going to be willing to lie to you two in most instances. And that’s probably just going to wind up with the application being denied essentially. But yeah. Getting a tax statement, if you have a self-employed person or really anybody that would definitely do its job in flushing out fake pay stubs, but ultimately there is a risk to screening any tenant or using any applicant supply document during the screening process, you know, it’s coming from someone else.

Andrew Schultz: (20:39)
It’s third-party information that has to be verified. You have to spend the time to de-risk the applicant. If you will, you have to spend the time to underwrite the applicant. If you will. Basically, what I’m saying here is you have to determine what level of risk that you’re willing to accept. Keep in mind that tenant screening is also a snapshot in time. They may be fully employed when they signed that lease with you and then lose their job three days after the lease gets signed, but before they move in, these things do happen. So it’s something that you have to take into account, you know, having a good set of written screening criteria that are fair housing compliant that you follow every single time will go a long way in making sure that you keep yourself out of hot water, but you really do need to understand how to properly screen and how to look at pay stubs objectively to make sure that you’re not just looking at something that someone is trying to pass off when it’s really just a fake document.

Andrew Schultz: (21:33)
If you’re not sure how to properly conduct a move-in or move-out inspection run prep has you covered our latest blog post explores the guidelines around rental property inspections, and even includes a free downloadable checklist. Check that out today, over at rentprep.com slash blog. And that’ll pretty much wrap things up for this week’s episode of the Rent Prep for Landlords podcast. Thank you all so much for listening. We truly do appreciate it. Our goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, and you can help us to reach our goal. If you heard anything in this week’s episode or any other episode that will help someone, you know, please do us a favor and share it with them. If you’re looking to get in contact with me, I can be reached over at whatsdrewupto.com from there, you’ll find links to everything going on with me over at Owned Buffalo, as well as other projects that we’re working on.

Andrew Schultz: (22:22)
We just launched a free investment property deal analyzer, which is also available on that site whatsdrewupto.com. It’s completely free. There’s no obligation. And there’s also a companion video to teach you how I analyze deals and how to use our tool. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including tenant-paid options. And if you’re over 50 doors, ask about the enterprise-level programs and pricing. I’ve been an enterprise user of Rent Prep for years now, 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. We’ll be back in two weeks with an all-new episode you won’t want to miss until then. I’m Andrew Schultz. We’ll ownbuffalo.com for rentprep.com and we’ll talk to you soon.