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Rental scams are on the rise. In 2021 alone, 11,578 people in the U.S. lost more than $350 million to rental scams, according to the FBI’s Internet Crime Complaint Center.
“There’s a magnitude of rent fraud that happens in commercial real estate,” said Suzanna DaSilva, Commercial Term Lending Treasury Sales Group Manager at JPMorgan Chase. “It can be check, ACH, cash, digital—it can even go as far as a property manager committing fraud.”
It’s important for multifamily owners and operators to understand their payments fraud risk and protect their businesses from common types of rent payment fraud.
Checks are the payment method most vulnerable to fraud, according to the 2023 AFP Payments Fraud and Control Survey Report. In 2022, 63% of respondents reported their organizations faced some kind of check fraud activity.
“Checks just touch so many hands that they’re easier to manipulate,” DaSilva said. While check use has decreased overall, checks are still commonly used for multifamily rent payments.
A common scam occurs when an applicant or renter provides you with a cashier’s check for too much money. The renter then urgently asks you to refund the difference. Only after you provide the refund do you discover the check was counterfeit.
In other instances, the applicant writes a check for the correct amount, but backs out of the lease agreement and requests a quick refund. To prevent check fraud, train your employees to never accept or cash checks written for the wrong amount. Your employees should also make sure a check has cleared before issuing any sort of refund.
Documentation is key when collecting rent payments. And it’s especially important when renters pay with cash.
“When there's a historical track record of a landlord collecting rental payments via cash, there’s a level of comfort that happens,” DaSilva said. Sometimes owners become too comfortable and fail to properly document payments.
Without documentation—such as a written record or receipt—it’s hard for owners to show that a renter has missed a payment or underpaid rent. That could make it difficult to enforce the terms of the lease.
Fraudsters often exploit ACH payments’ time delay in common scams, which include:
Digital payment methods aren’t fraud-proof, either. Similar to ACH debit chargebacks, credit card chargebacks happen when renters dispute charges to their cards. Scammers take advantage of this process and may dispute charges for rent. If the bank moves forward with the chargeback, multifamily property owners and operators lose the funds.
“It's challenging to stop rent fraud altogether, but we take a lot of pride in helping clients be proactive instead of reactive,” DaSilva said.
To protect against rental scams and fraud, multifamily owners and operators can:
Learn how multifamily property owners and operators can protect their businesses from wire fraud.
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