Industry Thoughts

How to combat the high cost of tenant fraud using AI income verification

July 10, 2023

minute read

  • Stephanie Spangler
    Head of Product Marketing, Inscribe

Tenant fraud can have a significant financial impact on property management companies. 

When applicants provide fake application documents or alterations to salary or employment in real application documents, and those tenants end up being evicted because they cannot pay rent, property managers face a number of costs in addition to lost rental income. These include: 

  1. Legal expenses: Dealing with fraudulent tenants often involves legal proceedings, such as eviction processes or pursuing legal action to recover unpaid rent or damages. Property management companies may incur significant expenses in hiring attorneys, filing court documents, and attending legal proceedings.
  2. Property damage and repairs: Fraudulent tenants may not respect the property, leading to damage beyond normal wear and tear. Property management companies may need to bear the costs of repairs, renovations, and restoring the property to its original condition.
  3. Administrative costs: Detecting and dealing with tenant fraud by using human review teams requires significant administrative efforts. Property management companies may need to allocate resources to investigate fraudulent activities, verify information, and implement stricter screening processes to prevent future fraud. These additional administrative tasks can lead to increased staffing costs and operational expenses.
  4. Vacancy costs: Tenant fraud can result in unexpected vacancies if fraudulent tenants are evicted or leave without notice. These vacancies incur costs such as advertising for new tenants, conducting screenings, and potential loss of rental income during the vacancy period.
  5. Reputational damage: Tenant fraud can harm the reputation of property management companies. Word-of-mouth and online reviews can negatively impact their ability to attract reliable tenants and property owners, decreasing business opportunities and potential revenue.

But how big of a problem is tenant fraud? 

Last year alone, Inscribe saw a 20% increase in the weekly volume of unique fraudulent document templates detected. Why? Applicants don’t have to go to the dark web anymore. There are numerous online marketplaces and social media sites like Reddit, Telegram, WhatsApp, and more where fake documents are being sold and forgery tips are being shared. 

Take the example below: A Reddit user asks for advice after using fake pay stubs for their apartment application. The property management company then asked for additional documentation (bank statements), and the applicant wasn’t sure what to do next. Other users suggested providing additional fraudulent documentation. One user even offered to provide a photoshopped document.

What's more? Less than 10% of document fraud is visible to the human eye. So it’s virtually impossible to know if fake application documents are being submitted. 

Katisha Kersey, Director of Administration at General Services Corporation (GSC), a leading provider of apartment homes and apartment management services, told us that experienced leasing consultants on her team had hunches about bad application documents, but no way to prove that they were indeed fraudulent:

“Our most seasoned leasing consultants were saying something just doesn't feel right with some bank statements and pay stubs, but they had no way to verify it. They had to act as [private investigators], researching addresses from pay stubs and credit reports and calling or emailing employers to verify a person’s employment and income."

Not only is this extremely time-consuming, but it also limits the ability to approve applicants who actually are a good fit. Other property management companies are adopting the technology to provide instant approvals. Those who don’t will miss out on high-quality tenants because it took long to validate the application documents.   

How AI-powered income verification can help

Property management companies can take proactive measures to prevent tenant fraud by implementing robust screening processes, conducting thorough background checks, and utilizing fraud detection and income verification methods. By investing in fraud prevention, property management companies can significantly reduce the financial costs associated with tenant fraud and maintain a more secure and profitable rental business.

Income verification serves as a vital tool for property management companies to assess a tenant's financial stability and ability to meet rental obligations. By confirming an applicant's income, you can make informed decisions and mitigate the risks of unpaid rent or eviction. 

When you use a Risk Intelligence solution like Inscribe, you’ll know with certainty if an applicant’s self-reported income matches their pay stubs or bank statements — all within seconds. Here’s how it works:

1. Collect applicant documents: With Inscribe, applicants can easily drag and drop required documents into Inscribe (fully customized with your branding) or upload live photos of documents taken from their phones. Set rules to ensure the correct documents are shared to keep things moving. For example, out-of-date, low-quality, or invalid documents can be rejected, and the applicant will be encouraged to retry.

2. Confirm documents are trustworthy: Inscribe will check them for fraud and will highlight any fraudulent activity found, like if Photoshop was used to edit bank statement balances or pay stub details. You can even see the differences between the document provided and the document recovered for further proof that the applicant should be rejected. Plus, unlike other platforms, we’ll detect fraud in both PDFs and images.

3. Verify an applicant’s income: Finally, Inscribe will confirm that the estimated earnings of the applicant adhere to your income requirements and that there are no credit or cash flow risks detected. 

Learn more about how help you decrease evictions and boost turnaround times.

Calculating the ROI of a Risk Intelligence solution

GSC is one of many property management companies that relies on Inscribe to decrease tenant fraud and approve more great-fit tenants. Some of the challenges they faced before using Inscribe included: 

  • An uptick in altered or forged bank statements and pay stubs during the pandemic increased application processing times and increased the risk of renting units to underqualified tenants.
  • A temporary federal moratorium on evictions for non-payment of rent extended the eviction process by several months, significantly increasing the cost of such events for GSC.
  • Manually verifying every applicant’s employment status and income to assess the applicant’s suitability was impractical or, in some cases, impossible.

During GSC’s search for the right solution, Katisha considered Inscribe, as well as several other vendors. One thing that stood out to her was the Inscribe team’s responsiveness throughout the evaluation process and their willingness to extend the trial period to ensure she was satisfied with the product before moving forward.   

“We didn’t go with another vendor because the sales rep was not very responsive during the process,” explains Katisha. “I wasn't impressed with that. To me, that's an indicator that if we have an issue, I won’t be able to contact someone to have it resolved.”

Another differentiator for Inscribe was flexibility in the pricing. Inscribe calculates the cost per document based on actual use, unlike other vendors which charge a flat fee “per door.” If pricing was based on each unit, it would mean that GSC would have to pay a fee for every property on the market (even if they did not generate any applications for the unit).

During GSC’s trial period alone, they experienced an immediate impact with Inscribe: 

  • Detected a significant number of fraud cases — 11% of documents were flagged as fraudulent.
  • Generated a 161% return on investment.
  • Reduced employment and income verification times from several days to a mere 12 seconds!

Want to know what your ROI will be with AI-powered income verification? Reach out to a member of our team and we’ll build a business case for you. 

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