Property management fraud has been on the rise since the Great Recession. Repair and maintenance billing is at the center of the fraudulent activity, with property managers mischarging for work or billing for work that has not been completed or that was not needed. Jason Hartman, president of Platinum Properties, has been the victim or fraudulent activity and has worked to educate other investors on the risk of potential fraud from property managers. We sat down with Hartman for an exclusive interview to talk about the increase in fraudulent activity from property managers and what owners can do to prevent it.
GlobeSt.com: Describe some of the fraudulent property management activity that you have seen.
Jason Hartman: Some of the fraudulent activity that we have seen includes property managers charging for work that wasn’t done, over charging for work or billing owners for unnecessary repair and maintenance issues. Those are really the three major categories of the fraud that we see most often, but another fraud that we have seen is property management companies claiming a unit is vacant when it is actually occupied, and they will pocket the rent. There are ways to monitor and prevent all of these.
GlobeSt.com: Is there a trend in the types of properties or investors that have been most frequently victimized by these activities?
Hartman: We deal mostly with single-family homes and apartment complexes, and in the larger properties, it is much harder to spot the fraud. In those instances, you really need to have an auditing firm or a forensic accountant—someone on the ground that can really see it. It is easier to see it with single-family homes or duplex- to fourplex-type properties. There is an interesting geographic trend. In more than a decade doing this, I have seen more fraud of this type coming out of Kansas City, MO, than any other market. I don’t know why. Every place has a culture, and I can’t explain it, but we have had the most issues in that city. 06:16
GlobeSt.com: Have you seen this fraudulent activity increase since the Great Recession?
Hartman: I don’t have any empirical data, but anecdotally, I would say that during the Great Recession the fraud got worse. Property management used to be a simple agreement between the manager and owner, but during the Great Recession, property managers began tacking on fees and increasing fraudulent behavior. What happens when you go through these cycles is that during a bad time when more crooks come out of the woodwork, you see that mentality stick with an industry through the next cycle. Once people get used to the fraud or people tolerate it, it becomes expected.
GlobeSt.com: What is your advice to owners that believe that they have been the victim of property management fraud?
Hartman: There are a few things that you can do. First, complain to the property manager. Second, do the administrative complaint to the state agency that is responsible, whether it is a bureau of real estate or another state agency, and we have a list for people to use. We are encouraging people to file a complaint, and get it on file so that when more people files complaints, they will get more attention. Third is to go to a complaint website, and make a public complaint. That is a way to hold people accountable in the public square. You have to be careful doing that so you don’t create liability for yourself. Finally, you can sue them in court. That is the hardest of all.
GlobeSt.com: How should owners initially go about choosing a property manager or properly vet a property manager to avoid becoming the victim of fraud.
Hartman: One of the things that property management companies do is put a barrier up between the owner and the tenants, and that is really the traditional way to do things. I think that if the owners were communicating with their tenants, it would make it very difficult for the manager to commit the fraud. Property managers are in a unique position to be able to put their hand in the cookie jar. The first thing that you can do is to get a referral from a source that you deem reputable, and you can look them up online. What I really recommend, however, is taking a highbred approach where the owner self manages a property and partners with a manager to provide a la-carte services and handles the transition between tenants. In this scenario, the owner collects the rent directly, and that gives the owner a lot more control. If you have a larger portfolio and need a property manager, then I would recommend that you hire your own property management team.