6 Common Tenant Fraud Scams and How Property Managers Can Avoid Them

Property management doesn’t come without risks — one of them being renter fraud. Many of your tenants will be reliable, but some may stretch the truth if your screening process is not up to par. In this article, we will highlight common rental scam tactics used by fraudulent tenants and provide actionable steps you can take to safeguard your property. 

There are many different types of tenant scams and as technology to detect renter fraud evolves, so do the schemes that fraudsters can pull off. It’s important to always stay vigilant during your tenant screening process and stay up to date on any news involving rental fraud. Below, we look at six of the most common scams and how to prevent them as a property owner or property manager.

Some tenants move in and never intend to pay their rent. Oftentimes, they can live rent free for some time by providing checks or online payments that they know will later bounce. Eviction laws vary per state, but no matter where your property is located, eviction is often a drawn-out process. During that time, you will be unable to collect rent on your property and the tenant is able to live there rent free.

One red flag you can look out for is overpayment. Some scammers may even go as far as writing a fake check in an amount larger than what they owe. They then will come back and ask for the additional amount to be refunded. You process the refund and then find later that the initial check was returned for non-sufficient funds (NSF). Not only were you unable to collect rent, you actually issued a “refund” that comes out of your pocket. Even if you add the charges back to your tenant’s account in the amount of rent plus the refund you gave, if they never pay that, then you are out that money.

This is difficult to prevent, as you do not have access to a resident’s bank accounts. Enforcing late fees, NSF fees, and other actions available to you to collect rent can help mitigate fraudulent payments. Encouraging residents to pay their rent with certified funds, such as a banker’s check or money order, or with a wire transfer or direct deposit from their checking account can help you avoid dealing with fraudulent payments altogether.

Illegal subletting poses many different issues. If rent is unpaid and you notice it is not your approved tenant living in the unit, it may not be as simple as removing them the same day. If you find an unauthorized occupant in your rental, you typically do not have their contact information, and they likely have not completed prerequisites to leasing, such as filling out a rental application, undergoing tenant screening, or signing a lease agreement. All of these factors make it infinitely more difficult to collect rent. To make matters worse, oftentimes you have to pursue eviction to have an unauthorized occupant removed.

Let’s say you have a tenant who no longer wishes to live with you. That tenant decides to move out without notice, and gives their keys to a friend, who moves into the rental. In most cases when a tenant moves out, you perform a move-out inspection and charge for damages and turnover fees. In this case, however, you are unable to due to the unauthorized occupant immediately moving in. Once the unknown tenant is discovered, you begin court eviction to have them removed, which not only takes time and money, but you are unable to collect rent in this time.  

Every state has squatters’ rights, which refers to unauthorized tenants being granted legal rights to a space after occupying it for a set period of time. The amount of time before squatters’ rights can be claimed is different for each state, ranging from 30 days to 20 years.

Removing someone who is squatting in a property is not as easy as calling law enforcement; if an unauthorized occupant can claim squatters’ rights, despite them never signing a lease with you, you must pursue legal action via eviction. Someone who illegally takes possession of a unit is able to avoid making rent payments since they are not contracted to the space. While you may be able to collect some money following a court order, that process can take weeks, if not months, and in that time, you are unable to rent to a legal tenant.

Doing a regular check-in on your tenants will help avoid surprises. Make sure you know who is meant to live where when completing work orders or conducting inspections.

Some tenants may purposefully damage your property or fabricate damage claims to seek compensation or avoid paying rent. Your rental property is required to be licensed with the city where it is located, which means city inspectors are prepared to come to your property if a claim is made against you by a tenant. If a tenant is looking to take advantage of this, they may damage the property and then file a complaint with the License and Inspections Department, where they can claim that you have failed to remedy the issue. Not only are fines applicable from the city, but this may give the complaining resident an opportunity to withhold rent. For example, a resident may purposefully sabotage their HVAC and then make a claim with the city that they do not have access to heat, hot water, or air conditioning to attempt to have their rent waived.

Keeping a detailed record of every complaint a tenant brings to your attention is vital in this situation, in case you need to point out discrepancies in their claims. If you can prove to the city that you were never given the opportunity to fix the damages, then oftentimes you are able to avoid losing out on rent. If a tenant does have a reasonable claim to withhold rent, ask that it be placed in an escrow account, which allows you to collect payment once the complaint has been remedied.

In most rental markets, you must provide a Notice to Quit to start the eviction process. These notices give the resident a specified time frame in which they must bring their rental account current or vacate the premises to avoid you pursuing legal action for possession. If the Notice to Quit expires and they have not remedied, then the eviction process (commonly 30 days or more) starts.

However, there are some loopholes that may extend the process. For example, if you accept payment from the resident, even if it is not for the entire amount owed, that can buy them some time. Let’s say a tenant owes you $1,000 in rent. They agree to a payment plan in which they’ll pay you $500 on the 1st of the next month and the remaining $500 on the 20th. You accept the initial $500, but the tenant fails to pay the remaining month’s rent on the 20th. At this point, the eviction process starts all over.

This is not always the case, as eviction laws are different in each state. Familiarize yourself with your state's eviction laws, and always confer with legal counsel before accepting payment from a tenant in the eviction process. If you are going to accept payment, ask for the tenant to use certified funds, such as a money order or a cashier’s check that requires them to have the money upfront, to avoid payment bouncing.

If they’re worried about not qualifying for your property, prospective tenants may try to use photo editing software or websites that can alter or create documents, like fake pay stubs, bank statements, credit scores or credit reports, references, and background checks.

Instead of allowing tenants to bring their own paper documents for approval, establish a thorough screening process that every prospective tenant must complete. Ask potential tenants for a social security number on their rental app, and use this to run your own background and credit checks — or outsource this process to a trusted partner. For example, when you work with ApartmentAdvisor (available now in Boston and NYC, and coming soon to other markets), we will vet tenants for you and only submit applications that passed a secure credit, background, income, and rental history check — so you can lease easily knowing that you are only working with qualified renters. 

Some scams are difficult to detect, which can make them seem unavoidable. By implementing thorough tenant screening and risk mitigation measures or working with trusted partners like ApartmentAdvisor, you minimize your exposure risk to prospective renters who look to take advantage of you. Stay up to date on local laws, watch for warning signs, and always confer with legal counsel if you suspect a tenant is attempting renter fraud.