Protecting Your Multifamily Business from Fraud
With how rampant fraud is in the multifamily industry, it’s not a matter of if you’ll experience it, but when. If you aren’t taking the necessary measures to prevent fraud from happening and mitigating the risk of potential fraud, you’re opening a Pandora's box that could lead to lost revenue that you may never recover.
While technology introduces the potential for more fraud to occur in the multi- family industry, there are strategies and tools that when implemented can significantly reduce the risk of potential fraud at your properties. How can multifamily professionals go about mitigating the risk of potential fraud from applicants?
Thorough initial screening needed - While running a credit check is a no-brainer, that is just one piece of the puzzle. If you can’t tell from what you’ve read so far, there are a number of ways to trick or evade the credit reporting process for identity thieves.
Part of a thorough background check involves not just an applicant’s financial solvency and credit worthiness, but also their online presence. To paraphrase an old idiom, if you can’t find anything about it on the internet, did it even happen? You might be wondering how this relates, but if the applicant doesn’t leave a trail at all on the internet, that should raise some suspicion. Now, not everyone is going to leave a big footprint on the internet. This shouldn’t be a reason to preclude applicants from renting from you, but it should trigger another set of protocols that vet them further. If you still have concerns about the applicant, a manual screening might be warranted.
It’s helpful if you have technology in place to automate much of this work. Once an application is submitted the wheels start turning on the back end and almost immediately you should be able to approve or deny an initial application. If any additional verification is needed, a one-time code being sent to the phone number or email address submitted for example, this too can be triggered automatically, depending on the workflows you have set up for approval.
It’s helpful if you have technology in place to automate much of this work. Once an application is submitted, the wheels start turning on the back end and almost immediately you should be able to approve or deny an initial application. If any additional verification is needed, a one-time code being sent to the phone number or email address the applicant submitted to confirm the identity. With the right technology in place, this can be triggered automatically, depending on the workflows you have set up for approval.
Have income verification workflows in place - Once the initial screening has been completed and passed, the next step in fraud prevention is to first ensure that the banking information provided is correct and second, that there are funds available to process the payment.
The first payment you’ll receive from the resident is likely a deposit either to hold the unit or a security deposit of some type. With larger payments like these, it might make sense to use certified funds, either through a money order or MoneyGram. Some property management solutions even have tools in place to collect certified funds. This would provide the least amount of friction to the applicant because they could create the certified funds request directly from the application portal and send it directly to you.
For regular monthly payments, you’ll also want to have guardrails in place to protect not only you, but your residents as well. Since 2021, NACHA, the governing body of the ACH network, has required that everyone accepting online payments use a “commercially reasonable fraudulent detection system” in place.
The best solutions can not only detect if the account is real (account number and user name and password exist), but also if there are enough funds available to cover the payment. You might be wondering why it should matter to you. Shouldn’t the onus be on the resident to provide proper information? And for the most part that is true, but just think of all the time and effort spent chasing down payments after the fact. It’s better to know beforehand and have a plan in place to get another payment method lined up or create a payment plan to help the resident get caught up.
The money and time can really add up. Before Entrata built Account Verification to help its customers solve this problem, its customers saw $238M in preventable ACH returns, with more than 280,000 returns in the 12 months prior. Those returns cost 970 work days and the average conversation with residents to recoup payment is five minutes, but many are much longer than that. That’s time lost by on-site staff that could be used to conduct tours or help existing residents have a better overall experience at your property.
Learn more - To learn more about how to prevent fraud at your properties, download our latest guide: Reducing Fraud & Late Payments in the multifamily industry.