Rehab Financial, Inc., RFI, had been in business for over 20 years and was used by many cities for escrow services. The City of Seal Beach began using RFI in 2006. According to Seal Beach Police Sergeant Steve Bowles, an investigation began “when Rehab Financial and its principals stopped returning telephone calls and abruptly vacated their Huntington Beach office.”

RFI facilitated the payment to contractors who performed housing rehabilitation work for seniors and lower income residents. The funds are designated for programs that protect and promote the health and safety of seniors and lower income homeowners and their families.

The city would send up to $35,000 per project to RFI for specific home improvement projects located within the city’s Riverfront Redevelopment Area. The redevelopment area runs along the West side of Old Town, adjacent to the DWP property, North through Bridgeport and Gumm Grove Park, and East to Seal Beach Blvd.

At any time RFI would be holding money for several redevelopment area projects. RFI would make payments to contractors as work progressed. The projects would be typical home improvement projects such as roofs, new kitchens, and painting.

According to Mark Persico, Director of Development Services, City of Seal Beach, RFI abruptly moved out of their Huntington Beach offices, stopped answering phone calls, and stopped paying contractors. About the same time, Persico said the city received a letter from RFI’s attorney directing the city to the U.S. Attorney for questions.

Next, Persico said a contractor contacted the city and threatened to walk off a partially completed job unless they got paid. The city had already paid RFI the money for the job, but RFI was nowhere to be found. If the contractor walked off the job, the homeowner would be left with no roof. It was at that point Persico said city staff made the decision to continue payments to contractors even though RFI held the money.

At this time, RFI held about $480,000 of the city’s money designated for more than 23 projects. Persico told www.OC180NEWS.com the city plans to bring the escrow function in house and pay the bills directly. The city will not accept any new projects until the logistics of the new administrative approach are worked out. But, all of the projects which had been started under RFI would be paid directly by the city with no disruption to contractors or homeowners.

According to the office of the United States Attorney for the Central District of California, “The former president of a Huntington Beach company that held grant money and loan proceeds in escrow on behalf of local governments has agreed to plead guilty to embezzling millions of dollars that belonged to San Francisco, Pomona, Seal Beach and 20 other California cities.

In a plea agreement filed May 7, 2010 in United States District Court, Belinda Exon, 55, who now lives in Phoenix, Arizona, admitted that she embezzled $3.9 million that was being held in escrow by her former company, Rehab Financial Services, Inc.

Rehab Financial is a now-defunct escrow and loan servicing agent that administered grants and loans for California municipalities. The money entrusted to Rehab Financial included funds awarded by the United States Department of Housing and Urban Development to local governments for rehabilitation programs designed to fix health and safety hazards in low-income housing, and to pay for upgrades necessary to bring low-income housing into compliance with building codes.

Exon agreed to plead guilty to one count of embezzling money from organizations that receive federal funds, a felony offense that carries a statutory maximum sentence of 10 years in federal prison. Exon is scheduled to make her initial appearance in federal court on June 7. The plea agreement filed May 7, 2010 contemplates a sentence of up to 46 months in federal prison and requires Exon to forfeit the properties she purchased with the embezzled funds and to make full restitution to the victim municipalities. The case against Exon was investigated by HUD’s Office of the Inspector General.”

David Carmany, City Manager for Seal Beach told us the city is insured for the loss. The amount to be recovered from the defendant is not known. Assistant United States Attorney Ranee Katzenstein told us the forfeited property is vacant land and income property in Arizona. No liquid assets have been taken by the U.S. Attorney, and she would not estimate the value of the real property.

While Katzenstein would not confirm that the investigation is continuing, we expect that there is more to this case. The defendant has agreed to cooperate with the U.S. Attorney, she has not been arrested, she has not posted bail, and the investigation was started before the cities even knew they were victims.