A financial company that San Francisco officials have used for more than a decade is suspected of stealing more than $1 million in city funds slated to help low-income residents make their homes safer, including money that pays for hazardous lead paint removal in buildings with children, court documents show.

City Attorney Dennis Herrera sued escrow firm Rehab Financial Corp. this week after learning the company had abruptly stopped answering its phones, shuttered its Huntington Beach (Orange County) office and drained bank accounts holding city funds.

The lawsuit filed Tuesday accuses the company of misappropriating several million dollars from San Francisco and at least a dozen other California cities.

"They've been stealing it," said Deputy City Attorney Don Margolis. "They've been stealing it and using it for their own purposes."

Rehab Financial Corp.'s president, Belinda Exon, is the subject of a federal criminal probe into whether she was embezzling funds for her personal use, although Exon maintains she is cooperating with that investigation, according to city filings in San Francisco Superior Court.

Exon also "precipitously shut down" other businesses in Arizona and elsewhere that she owns or has a stake in, according to the city's court filings. Records link Exon to a landscaping company and a pool and spa business in Arizona.

Exon could not be reached. Her attorney, Bob Bernstein, did not return a call seeking comment.

In a March 26 letter to Margolis, Bernstein wrote: "Rehab Financial Corporation is encountering certain financial difficulties and will be forced to cease its operations immediately."

The letter went on to say, "no further payments will be issued."

At the time, the company had about $1.1 million in San Francisco funds deposited by the Mayor's Office of Housing. Bank records show only $58,700 in the company's accounts. Herrera secured a court order Tuesday freezing at least eight bank accounts that Exon and three other employees named in the lawsuit - Barbara Wood, Cheryl Isaacson and Gayle Bloomingdale - have access to, records show.

Money held for programs

Rehab Financial Corp. is one of several escrow companies the Mayor's Office of Housing used while administering four programs that provide grants or low-interest loans to make homes used by low-income residents safer. The programs include removing lead-based paint, making the buildings accessible to people with disabilities, and completing deferred maintenance to bring homes up to current safety codes.

The city would deposit money with the escrow company, which was to disburse specific amounts to contractors at the city's direction once the work was completed. The city then would often be reimbursed by the state or federal department of Housing and Urban Development.

The alleged theft is particularly unwelcome news as the city grapples with bridging a $522 million budget deficit for next fiscal year.

Despite the disappearance of about $1 million, property owners using the programs shouldn't be immediately affected, said Doug Shoemaker, director of the Mayor's Office of Housing.

"Our main goal, aside from trying to recover that money, is to ensure that there is not financial harm to any property owners," Shoemaker said. "We're trying to make sure we have resources in place to make sure work can continue."

Funds to be diverted

Other funds would be diverted to reimburse program participants until the city is reimbursed from the state or federal government, he said.

The missing funds were discovered after an employee for the city of Pomona (Los Angeles County) grew suspicious because Rehab Financial was not returning her calls and the company's online account system wasn't working, court documents show. The employee went to Rehab Financial's office on March 24 and found it closed. Neighboring business tenants told the Pomona employee they had seen the escrow company's staff moving office materials and other items out on March 20, court filings show.

That was three days before San Francisco sent its most recent transfer - $73,705 - to Rehab Financial. Two days later, all that remained of that transfer was $8,648, even though the city had given no instructions for its disbursement.

"Despite the federal involvement in investigating defendant Exon's wrongdoing, and ... Exon's purported cooperation in the investigation ... defendants to this day persist in stealing San Francisco funds entrusted to them," Margolis wrote in a court filing.