Key Takeaways
Rental scams targeting landlords are on the rise, with fake tenant applications and listing cloning becoming more common.
DSCR investors are especially vulnerable, as rental income disruptions can impact loan performance and ROI.
Fraudsters now use AI-generated documents, stolen identities, and falsified pay stubs to pass tenant screenings.
Investors should enhance screening with live ID verification, employer checks, and fraud detection tools.
Leases should include clauses for immediate eviction or termination in case of fraud.
Regular audits, listing monitoring, and prompt legal action are key to protecting your investment.
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Leasing fraud is on the rise. While tenants are widely warned about rental scams, landlords and investors are now facing serious fraud risks that directly impact their returns. If you’re a DSCR rental investor, this one deserves your attention. As technology and AI are increasingly used to help investors find, analyze, and manage real estate deals, they’re also being leveraged by scammers to carry out more sophisticated fraud. That means investors must sharpen their detection skills and protect their investment from financial loss.
What does this scam look like?
In recent years, the volume and sophistication of fraud attempts in the rental and real‑estate market have exploded. In April 2024, nearly 20% of insurance companies reported at least one impersonation fraud attempt. Some management companies report 50%+ of applications show signs of fraud in urban markets, with fraudsters disappearing after 1-2months without having paid any rent of course.
The National Multifamily Housing Counsil Pulse Survey of housing providers released in 2024 found 93.3% of respondents had experienced fraud in the past 12 months, from falsified income documents to identity theft and manipulated applications.
Some in the industry say the use of fake pay‑stubs, counterfeit employment records, and fabricated tenant histories are now common tools for fraudsters.
Another variation is the property‐listing clone. A scammer steals photos and listing information from a legit rental, reposts the listing under their own contact, collects a deposit or rent, and disappears, leaving the investor to deal with the fallout.
Why this matters for DSCR investors
For investors using loan structures like DSCR (Debt Service Coverage Ratio) financing, rental income is often crucial to covering mortgage payments and other holding costs. When tenants skip rent, disappear, or never existed in the first place, those payments vanish, and so does your financial cushion.
If a property was underwritten with the expectation of consistent monthly rent, a disruption like this can put you off balance. Evictions, re‑marketing times, holding costs and legal expenses all eat into ROI. In DSCR deals, where cash flow stability is a key element, fraud can undermine the entire foundation of your deal.
How to protect your rental property investment
Now that we’ve established how crafty fraudsters are becoming, the main concern is to determine how investors can safe-guard themselves against this. There are a number of ways to do this, and ultimately, using a combination of all of them is the best bet.
1. Strengthen your tenant screening process
Your tenant screening process should leave as little room for manipulation as possible. A great way to ward off fake ID’s is to require live ID verification. Contact the applicant’s claimed employer directly to check their employment history. Reject unverified PDFs unless you’ve authenticated the source. Tools such as identity‑verification services, document‑fraud detection platforms, and background‑check analyses are increasingly essential. Cross‑check employer names, logos, bank statements, and make use of LinkedIn or Google searches to ensure the claimed employment history lines up.
2. Ensure your lease includes fraud‑specific clauses
It is wise to include lease provisions that allow you to terminate or evict a tenant immediately if you discover fraudulent documentation or misrepresentation. Make sure the lease clearly states that falsifying income, identity, or rental history can trigger early termination, eviction, and recovery of associated costs.
3. Audit tenants upon property acquisition
If you acquire a property with tenants already in place, don’t assume everything is above board. Do a full audit: review IDs, employment verification, previous rental history, credit scores, and payment records. Look for inconsistencies such as mismatched names, suspicious rental gaps, or odd payment patterns. Contact references and cross check all information. It’s vital to ensure that you understand what you are inheriting before relying on that rent in your underwriting.
4. Monitor your listings for cloning or unauthorized re‑listing
Protect your brand and listings by setting up Google Alerts for your property addresses. If a listing appears elsewhere that you didn’t post, you’ll see it. Consider watermarking your listing photos with your contact details so you can more easily identify when someone else uses your visuals, and prospective tenants will be likely to contact you via that information. Keep an eye out for sub‑letting or listings of your asset that you did not authorize.
What to do if you get scammed
Despite the best precautions, fraud can still happen. If you’ve become a victim of fraud or a rental scam from a tenant, here’s your plan of action:
Step 1: Seek legal counsel and report to law enforcement
Begin by contacting your attorney. You’ll want to gather evidence, document your losses, and initiate any necessary fraud investigation or civil action. Also report the matter to local authorities to open an official case.
Step 2: Notify your lender and insurance carrier
Inform your mortgage lender and your insurance provider about the fraud incident. Provide any police reports or evidence and demonstrate the measures you’re putting in place to prevent a recurrence. Transparent communication may help with coverage or future underwriting assumptions.
Step 3: Evict the fraudulent tenant and secure the property
If a fraudulent tenant is occupying your unit, proceed with eviction through your attorney. Pause new leases until you’ve cleaned up the case and ensured the property is properly secured. It’s a good idea to restore full control and mitigate waste or damage before continuing the tenant selection process.
Step 4: Report the fraud to appropriate agencies and platforms
If the fraud involves listing cloning or identity misrepresentation, report it to the relevant listing site (for example, if your images or address were stolen), the Federal Trade Commission (FTC) and the Internet Crime Complaint Center (IC3). Documentation of the scam helps prevent future victims and may support recovery efforts.
Step 5: Fix your process and document your improvements
Once the immediate issue is addressed, revisit your screening process, lease structure, and listing monitoring tools. Correct the gaps you have identified and make sure your lender knows you’ve made adjustments, as this may support future underwriting or insurance negotiations.
Final word
Fraud in the rental market isn’t just a renter problem, it’s a real and growing threat to investors who depend on reliable cash flows. With digital tools, AI‑generated documents, identity theft and listing cloning becoming more accessible to scammers, staying one step ahead isn’t optional, it’s essential.
For DSCR investors, your deal often hinges on the stability of the rent. A single fraudulent tenancy can ripple into missed payments, higher holding costs, weakened refinancing terms, and sub‑par returns. By adopting a layered approach that includes strong screening, lease protections, vigilant monitoring, and post‑acquisition audits, you can build resilience into your investment strategy.
Investing in anything comes with a risk, the difference now is that one of the risks has gone digital, sophisticated, and widespread. However, like any risk, it can be mitigated. By staying proactive, leveraging emerging technologies, and treating fraud prevention as a core part of your underwriting and property management process, you’ll reinforce your portfolio’s durability, and protect your ROI.
