When a borrower quit repaying a loan with a $360,000 balance, Gotham Bank of New York turned to Kerry Lutz PC, a small law firm in Westchester County.

Using data bases, public records, and old-fashioned intuition, the firm uncovered bank accounts linked to that customer that were worth, coincidentally, $360,000. Then, after the borrower reneged on a new repayment agreement, Kerry Lutz discovered that the same customer owned a commercial building that was being sold. The firm quickly intervened, and proceeds from the sale ultimately went to $100 million-asset Gotham - not its deadbeat customer. "That's money that we'd already considered lost," said Frank J. Colluccio, a Gotham senior vice president. "I don't know what methods Kerry Lutz used, and I don't need to know. All I know is that they get results."

Kerry Lutz is no ordinary law firm.

Founded less than three years ago by Kerry Lutz and David Waldman, the firm has the sole focus of recovering assets debtors have deliberately hidden from lenders. It has sleuthed for all types of corporations, including banks ranging in size from Gotham to Chase Manhattan Corp.

"As far as most people are concerned, banks are made out of money," Mr. Waldman said. "What they don't realize is that banks operate on very narrow margins, so when a loan is not repaid, the bank takes a pretty big hit."

That's especially true at community banks. Large banks offset loan losses with fee income, but small banks still rely heavily on lending to make money. "Every time a bank - especially a community bank - has to write off a loan, it's a tragedy," Mr. Waldman said.

The law firm evolved from a legal printing business owned by Mr. Lutz's family.

The company printed cases on appeal for lawyers, but found that it often had to hire lawyers of its own to collect payment. So Mr. Lutz, now 42, decided to go to law school and take on the collections efforts of the family business.

Unfortunately, he didn't have much more success than outside counsel. "Most lawyers are good at getting judgments, but lousy at enforcing them," he said.

But Mr. Lutz discovered he was good at was finding hidden bank accounts of debtors. So he advertised his services in a New York legal paper and soon was operating as a separate division of the printing company. The printing business was later sold, but the recovery division was reborn as Kerry Lutz PC.

Even today, the firm rarely works for a bank directly. Typically, it is hired by law firms that have won a judgment for a bank, but do not have the time, inclination, or expertise to track down the debtor's assets.

"You might say we are the attorney's attorneys," said Mr. Waldman, formerly an in-house lawyer for Citibank and Chase Manhattan.

One regular client is Christopher Sullivan, a partner at Herrick Feinstein in New York. Mr. Sullivan said he often hires Kerry Lutz when a debtor refuses to repay a loan even after a judge has ordered payment. Without discussing specific cases, Mr. Sullivan said Kerry Lutz has an expertise in asset recovery that his firm simply cannot match.

"I hire them for their nose," Mr. Sullivan said. "Collecting judgments can be time-consuming and arduous and if you don't know how to go about it, you can end up going in 15 different directions."

So how does Kerry Lutz find hidden assets?

First, it looks at a debtor's work history. Large debtors are often entrepreneurs who are "incapable" of working for anybody else, according to Mr. Waldman. Such people often begin stashing away funds when their business or venture begins heading south.

"The debtor is not going to go and manage a McDonald's for $25,000 a year," Mr. Waldman said. "He knows he is going to need his money for his next reincarnation and he needs that money much more than the bank does."

The firm also looks for clues in a debtor's lifestyle. As Mr. Lutz put it, "We know a guy has money if he's driving around in a Ferrari."

The recovery process begins by searching data bases. Bank account, automobile, and real estate records are all available on data bases, though often not under the debtor's name.

"What we invariably find is that the debtor has denuded himself of all assets and put everything in his wife's name," Mr. Waldman said.

Bank accounts are crucial, and not just because they reveal how much a debtor has in savings. By tracking checks coming in and out, the firm can see who is paying the country club dues or the mortgage on the vacation home.

In one recent case, for example, the firm discovered that a debtor to Great Eastern Bank in New York was paying condominium fees on a property he claimed he never owned. The condo is being sold, and Great Eastern will get much of the proceeds.

Locating a debtor's accountant is another top priority. Accountant-client privileges do not exist in New York, so an accountant has no choice but to produce records when faced with a subpoena. "With small businesses and entrepreneurs, the accountant is crucial, because it's the accountant who knows where all the bodies are buried," Mr. Lutz said.

The firm generally takes three to four months to gather documents and subpoena records, and another month to draw up the legal briefs. Then it makes a single motion to recover the assets or force the debtor into bankruptcy within six months.

"We're like snipers," said Mr. Waldman, a former infantry officer in Vietnam. "We're out there by ourselves, very quiet, just gathering information. Then we make our 'one-shot, one-kill' motion."

Kerry Lutz is selective about the cases it accepts. With only four lawyers and three paralegals, the firm does not have the manpower to take on more than a handful of cases a year.

It will not accept cases where it is fairly clear the debtor has few assets to uncover. And it typically avoids any case in which the debt is less than $250,000, unless the assets can be recovered quickly.

But once Kerry Lutz accepts an assignment, debtors beware.

As Mr. Waldman said, "There's nothing more terrifying than being caught in the crosshairs of a sniper."

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