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Synthetic Fraud: How to Identify, Respond To & Prevent It

Synthetic Fraud
June 2019

Apartment operators and managers are all too familiar with the effects identity fraud can have on their business, but not all instances of the problem are alike. In fact, of the four types of identity fraud commonly encountered in the multifamily industry, synthetic fraud—in which all information about the applicant is fabricated, combining real and fake information to create a new identity—is the fastest-growing, accounting for an estimated 85 percent of all identity fraud in the country. Yet, despite the financial devastation synthetic fraud can cause property owners, including extensive revenue loss and increased liability for resident safety, its occurrence is difficult to identify during the leasing process because it isn’t immediately reported as other types of identity fraud are because there is no real physical victim to report the crime. 

Perpetrators of synthetic fraud create fake IDs that combine real data with falsified names. The resulting IDs, notes tech writer Angelica Krystle Donati in a Jan. 16, 2019, article on Forbes.com, “are easily purchased on Craigslist or other online platforms and can be used to apply for loans, credit, and other transactions,” including apartment leasing, leading to an epidemic of fraud facing multifamily operators throughout the country. According to fraud-prevention services firm CheckpointID, Donati notes, “75 percent of management companies with fewer than 30,000 units and 100 percent of management companies with more than 30,000 units are victims of fraud. This translates into millions of dollars in annual losses for the industry from bad debts and skipping.” 

While rental fraud continues to grow, fraud prevention today is merely reactive, not proactive as it should be. According to TransUnion, 95% of property management companies experience difficulties identifying, mitigating, or preventing fraud. Property management companies need tools that are advanced enough to proactively mitigate the aftermath of a determined fraudster to better protect their business. It is reported that 73% of owner/managers identify fraud after the applicant moves in and over 70% identified the fraud within the first six months after move-in, leading to forced turnover well before the typical end-of-lease cycle.

Property managers can expect to encounter four basic types of identity fraud. For the purposes of this document, we’ll focus solely on synthetic fraud; however, a brief definition of all four types appears below for the reader’s basic understanding.

First-Person Fraud:

The applicant is acting for another person when renting an apartment. The applicant uses his or her real identity information on the application but isn’t the person who’ll be residing in the apartment. The applicant in this instance could be a family member, a friend, or someone renting for short-term rental purposes such as Airbnb lodging.

Third-Party Fraud:

The applicant assumes a stolen identity and uses the victim’s personally identifiable information (PII), including name, Social Security number (SSN), and date of birth.

Identity-Manipulation Fraud:

The applicant alters some of his or her own identifying information in a way that looks as if it could be a typo or spelling error. Common examples include an SSN that’s off by one number or includes transposed numbers, a slightly different name, or an altered birthdate. 

Synthetic Fraud:

The applicant creates a fake identity by fabricating all identifying information (SSN, name, date of birth), cobbling together an identity from multiple stolen sources, or doing a mix of both. Real SSNs, typically from children, the elderly or deceased people, are often used in combination with made-up names and birthdates, but even the SSN can be fabricated.

This document is free to members of NAA, the white paper takes the guesswork out of how synthetic fraud is defined, best practices to respond and prevent fraudulent activity and resources to protect your business. 

Learn More about the full White Paper