Securing your Assets from the Ground Up
Criminal Trespass, Marketing Scams and Other Fraudulent Activities
By Suzanne Andresen
In last month’s issue of REI INK magazine, we had two terrific articles about technology and what strategies are currently available to protect your assets.
The cover story from Swidget focused on the use of their smart home devices that can help ensure that both landlord and tenant experiences can be positively influenced with the use of technology.
Also in that issue, Alex Fahsel, the co-founder of Property Shield, discussed asset protection strategies through the implementation of their service which protects real estate companies and professionals from scams, brand impersonations, and illegal occupancy issues. Property Shield sees themselves as a preventative measure to these fraudulent leases as described in this article.
We have heard all sorts of statistics about “trespassing” and the amount of money that is lost due to the lack of legal strategies that protect the landlord. There seem to be two types of trespass: civil and criminal. Let’s explore criminal trespass, defined as the intent of an individual to knowingly commit trespass, ignoring signs, and/or creating forceable entry.
Criminal Trespass
Most states do not prosecute criminal trespass, and some will not even process claims for first offenses. Currently, squatters are protected in all states from forceful removal and many law enforcement agencies will not even respond to this current issue.
In discussing the elements of trespass with an industry investor, he shared that they had an average trespass occupancy of 272 days. That is a significant loss of rental income — not to mention the monetary losses due to the interior damage done to the premises during a fraudulent tenancy. At present, Florida and Texas have the most progressive legislation in progress to address trespass, but no state has a bill ready to be passed into law.
The question remains: How can landlords protect their assets from fraudulent tenancy? We have been told by many legal authorities that property owners are prohibited from turning off water or electric services to their owned assets while there is a tenant onsite — whether that tenant is there legally or not.
I have a hard time processing that perspective or law. If you are the one responsible for payment, it should be your determination and right to control the utilities if the individual in residence has no legal right to be there. Tenants who violate the terms of their legally binding leases by remaining in the property after the end of the term are a separate and distinct issue and have long been protected from loss of utilities, correctly or not, by virtue of their previous legal leasing status. You may not agree with this, but that is the law protecting the tenant. That is very different from the unauthorized and illegal squatting activities landlords are reporting today.
A Real-Life Scenario
Let us consider the timeframe immediately at the end of a lease when the tenant willingly departs in a timely fashion. You may have a property inspection protocol to ensure that the tenant did not go beyond the basic wear and tear of the asset. You schedule your walk-through, probably before the move out, noting the repairs and touchups required to make the asset presentable for the next occupant. A short vacancy period is the critical element of opportunity for the fraudulent occupancy.
As you prepare your assets for public viewing and create self-guided tours complete with keycode access, think about how you could secure the vacant property. Let’s look at Swidget’s portable kit as part of their modular technology offering.
At a recent installation in Atlanta, eight kits from Swidget were installed and activated over a 3-day timeframe. These kits consisted of two cameras, a cellular LTE device, and a door with locking mechanisms. At their first install, in about 2 ½ hours following the completion, key code access to the unit through legally intended means quickly turned into a well-choreographed illegal tenancy scam — almost.
The fake renters dismantled the electronic lock by removing the batteries, so the door was no longer secure. They then proceeded to preview the property, commenting that “this would be their first bedroom with a closet,” and began discussing what fake name to put on the lease. The entire conversation and visual activities were captured on the two video cameras recording to the cloud from the cellular transmitter. This scheme was thwarted by the end of the afternoon when the owners were notified that the locking mechanism was offline and needed prompt attention.
While this trespass in the making was averted early, what other preventative steps could have been be taken?
Let’s say we incorporate utility deactivation as part of our tenant-turn protocol. Shutting off the water and electric services makes the property uninhabitable immediately. Furthermore, it is likely legal since there was not a tenant occupying the property, although you should check with legal counsel to be sure this is true in your specific case. You may be thinking that criminals are smart enough to know how to turn the water back on at the street. I am proposing an installation of a smart home water shut off, specifically out of reach and out of sight.
Now, let’s add a subpanel to the electric that only powers our cellular transmitter, a few lights and, in the northeast, heat during the winter months. The stove, refrigerator and other necessary appliances will not be operational until the landlord turns them all on again.
Since this REI INK issue is focused on Build to Rent, let’s build in a faux beam in the garage or basement that the trespassers would not recognize as the real “brain” of the house — ruining the tenant experience for the trespassers. This goes back to the initial question you asked your departing tenant, “What time do you expect to leave the premises?”
Explain to the departing tenant that this is extremely important to protect their departure and the tenant-turn process. Adding the “brain” can certainly be easily modified on already built assets. The key is inconspicuously locating the units.
Fraudulent Leases
Another area of concern is fraudulent leases. Criminals use local listing information against the landlords. Identity theft and rental marketing fraud is rampant. Posting a listing for a rental property is the first step in attracting a new tenant. Many real estate sites syndicate the listing information like Zillow, Realtor.com, Craigslist, Redfin, etc.
Criminals are smarter than we give them credit for. They see a rental advertisement they want to use and claim the listing as their house (we see this all the time— “Claim this info as yours” on many websites we access regularly), capturing all potential tenant interest to their preferred contact method — a burner phone.
Here is a post on REDDIT to help explain the scenario:
“Yesterday people started showing up at our house (we own it) saying they had an appointment with a “Smith” to tour it for rent. They all contacted him through a “button” on Zillow and Trulia. By the time these folks showed it to us the button was gone but “Smith” kept texting them to go look at the house. The rent was way below market, so the scammer got that part right, but for all these people they came to discover they had been scammed without paying a dime. They were all locals.
He is using interior photos from a house down the street that is for sale right now, so the photos show an empty home. But in person all these people realize that the exterior and interior are two different (but similar) homes. So, is he just weeding out false positives hoping to find someone out of state?”
A situation like this is where Property Shield comes in. The Property Shield system crawls the web across a wide range of social media and real estate listing platforms and identifies instances of fraudulent listings and brand impersonations using proprietary machine learning algorithms trained on millions of property listings.
As a sidenote, during my research, I found full tutorials on creating various scams. One in particular was titled, “How to Create a Scam Token, Honeypot Token, Rugpull, or any other Cryptoscam.” Is this where our society has gone? If only we could harness this mental tenacity to find a cure for cancer, we would all be better off.
Lack of Rental Housing
The lack of available rental units is creating a frenzied environment for renters looking to move. A supplemental analysis seen on Reddit of the fraud is shared below:
“The criminals are creating a below-market rent and utilizing pictures of a similar neighborhood house, providing a similar location and amenities scenario, creating a false sense of security. Most local folks will do a drive-by and see if they like the location, and then contact the landlord to make an offer or ask to see the interior.”
In most cases this will expedite the transaction. The best “fish” is the one from out of state that cannot come in person to physically inspect the property agrees to take it sight unseen. Several of those would-be tenants are exactly what the criminal is looking for. All applicants can enter into a fake lease agreement, electronically pay the first month’s rent and security deposit, and rent happily ever after — or not.
This leads me to online payment platforms and the opportunity for fraud. Monetary fraud has been around for years. Cryptocurrency is going to exponentially exacerbate that problem. We need updated protocols that protect the digital wallet. We could create a holding period in an escrow account with very specific guidelines for money release. If they terminate their lease prior to occupancy, you still get a portion of escrow funds for fees.
While this is an additional step, if we get local city ordinances to address the need for proper rental security, both for monetary and for physical access, all will win. I live 45 minutes north of Portland, Maine, where the city is contemplating a mandatory rental registry. The city hopes this will help to eliminate fraudulent access. This is definitely on the horizon. It provides protection for the tenant, which is traditionally where the cry for help is coming from, while protecting the asset for the landlord.
Hopefully, a win-win for all involved.
