Tips for landlords: Beware of tenants who are identity thieves

February 9, 2018 - 5 min read

Landlord, beware of identity thieves

Tips for landlords today include dealing with technology and crimes that would not have been possible in previous generations. Smart landlords take care to vet prospective tenants before signing a lease or rental agreement. Because that’s the best way to minimize renter risk. After all, past behavior is often the best indicator of future behavior.

So you do your best to screen out those who:

  • Are in deep financial trouble,
  • Have worrying criminal convictions
  • Have a history of abusing landlord/tenant relationships

And it’s great when you get a clean background check. You feel much more confident your rental unit and your future revenue stream are in safe hands.

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Landlords who rely on background checks face threat

But you may be getting a false sense of security. Because, after a lull, identity theft is on the rise again.

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And that means the perfect history revealed by your vetting may belong to someone else. In other words, your prospective tenant may be a criminal: someone who’s stolen an identity. And that perfect record may be that of a completely different person. In fact, you might be about to sign a lease with the worst sort of fraudster.

The rise of identity theft

The 2017 Identity Fraud Study, published by Javelin Strategy & Research, reported that incidents of identity theft reached a record high in 2016. In that year, the crime created 15.4 million American victims — at a total cost of $16 billion.

Unfortunately, there don’t appear to be any large-scale studies of the effects of identity theft on landlords. But, in December 2017, a real estate research company, reported on a small-scale one it had conducted itself.

And CoreLogic’s findings were scary. It asked 30 large landlords about their experiences. And a whopping 75 percent said they’d been a victim of applicant fraud. That’s when prospective tenants pretend to be someone else.

Are smaller landlords at risk?

Of course, basic math means that landlords with smaller property portfolios are less likely individually to be victims. But there’s no reason to suppose identity thieves target big property companies.

Indeed, you may think it more likely they assume those have more sophisticated resources and technologies to protect them. And, if that’s the case, smaller landlords may be at disproportionate risk.

High- and low-risk states

But all landlords face dangers from this crime. It’s a nationwide problem.

However, the spread across the country is far from even. The Federal Trade Commission counts the identity theft complaints it receives each year. And it then breaks those down by state. According to an analysis of those numbers for 2016 by the Insurance Information Institute, the five with the highest incidence of complaints were:

  1. Michigan
  2. Florida
  3. Delaware
  4. California
  5. Illinois

And the states with the least complaints were Hawaii (with the smallest number a head), South Dakota and West Virginia. But, even if you own rental property in these low-threat states, you should be on your guard against the rising dangers posed by this increasingly common phenomenon.

What’s at stake?

Owing to huge differences in state and local laws, the cost and time it takes to evict a tenant varies wildly across the nation. But CoreLogic reckons the average eviction comes in at between $5,000 and $10,000.

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However, those costs could be only the tip of the iceberg. Because landlords may face criminal or civil penalties arising from their tenants’ illegal activities. In the very worst cases, the government may confiscate an entire building.

Criminals often commit more than one crime

So it’s not just lost rent and lawyers’ and court fees that could be at stake.

CoreLogic talks about:

... the unsettling fact that the desire to live rent-free was just one of many reasons people commit identity fraud when renting. In fact, many people who falsify their identities pay rent on time—and some live undetected for years. Their motivations for presenting false identities vary ...

We know that identity thieves are criminals. So it should be no surprise that they’re often into other crimes, such as dealing drugs.

Your potential liability

Landlords can be criminally liable under federal, state and local laws for criminal offenses committed by their tenants, especially drug dealers. And innocent tenants can sue landlords if they’re injured or harassed by other tenants who are dealers.

Of course, you’re unlikely to face such problems if you take reasonable steps to keep your units crime-free. And FindLaw recommends you:

  1. Screen tenants carefully
  2. Have an explicit clause in your leases/rental agreements that prohibits drug dealing — and enforce it rigorously
  3. Refuse rental payments in cash, absent a good and credible reason to accept them
  4. Thoroughly investigate any complaints from tenants or other neighbors (or any suspicions they report to you) concerning illegal activities in your rental properties

Carry out those four conscientiously, and there’s a good chance you’ll have a defense against actions.

What you can do

You’ll have noticed a Catch-22 issue. The first of those FindLaw recommendations is to screen tenants carefully. But the whole problem with identity theft is that you may be background checking the wrong person.

So what can you do? Well, some websites offer landlords a service that checks social security numbers (SSNs) against applicants’ details. These may try to validate the name and SSN, the current address and the correctness of the zip code. They also say they search databases of deceased people’s SSNs while making sure the number was issued in a year that lines up with the age of the applicant. And all those may be great.

Run down references

But the best way to avoid identity thieves may be to follow up on the references they have from previous landlords. Make calls to talk through applicants’ past behavior in terms of prompt rental payments, care of the home and appropriate respect for rules, including not causing nuisances. Obviously, you’ll also want to make sure they weren’t involved in criminal activity.

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And take a photo of your applicant and text or email it to past landlords. Getting a positive ID provides a great deal of reassurance.

Nothing you can do can protect you 100 percent from identity thieves. But that doesn’t mean you should give up the fight. It’s vital you do all you reasonably can to protect yourself and your other tenants.

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Today’s mortgage rates are fairly stable following a bit of a run-up earlier in the week. However, a published mortgage rate snapshot cannot replace a set of custom quotes from several competing mortgage lenders.

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Peter Warden
Authored By: Peter Warden
The Mortgage Reports Editor
Peter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.