The Paletz Law Blog

Application Fraud is Rampant for Landlords and Shows No Signs of Slowing

Michigan landlords can ask for pay stubs, W-2s, bank statements, paid invoices, or job offer letters to prove income for potential tenants.  But according to a new study from the National Multifamily Housing Council (NMHC), those proofs of income are being falsified at a mind-numbing level.

In a study released just a few weeks ago, close to all of its landlord and property owner respondents (93%) reported experiencing fraud in the past year including:

• Applicants falsifying or fabricating pay stubs, employment references, or other types of income documentation (83%)
• Identity theft in the use of fraudulent ID documents or use of someone else’s personal information (70%)
• Observed renters misrepresenting information on applications (80%)
• Unauthorized cohabitants, illegal subletting, or other actions meant to evade application or the leasing process (67.1%)
• Check fraud or other fraudulent methods of pay (67.1%)

Fraud is running rampant with the NMHC survey reporting a 40% average increase in the past year compared to the previous 12 months, and on average 28.3% of eviction filings resulted from fraudulent applications and a failure to pay rent owed.

What is especially concerning and what we’re hearing from many of our clients is this application fraud has resulted in great financial hardship. The NMHC survey bears this out, with respondents reporting nearly $4.2 million in bad debt written off in the past 12 months.

What we always advise is that landlords look at the small details when reviewing pay stubs, making sure they are clearly legible and the numbers on the forms are lined up with no typos.  These are obvious warning signs that the information supplied may be fabricated.

For those wanting to run background checks, Michigan law requires you to have a signed consent form from the prospective tenant before you can begin the process.  Most applications include this information and have a clear space for a signature. But beware, as we have been warning about in recent years, some local jurisdictions are looking to outlaw this practice entirely as they cite fair housing concerns. So, make sure you are continually speaking with your vendor, insurance carrier and lawyer to be up to date as to your potential liability.

The Bottom Line: Don’t be in denial about tenant application fraud. Have policies and procedures in place to combat this rampant issue. Plus, have Paletz Law on speed dial to determine the current state of affairs regarding fair housing implications.