SOUTH OF THE BORDER LOOKS GOOD TO LENDERS; COMPANIES OFFER FUNDING TO ACQUIRE MEXICO REAL ESTATE.

Byline: Gregory J. Wilcox Daily News Staff Writer

A San Fernando Valley mortgage company is going where few have gone before in search of new business - Mexico.

Sherman Oaks-based Metrociti Mortgage Corp. has joined a small group of U.S. companies that have begun offering loans to American citizens who want to buy property south of the border.

There's no land rush yet, but a trend is taking shape for several reasons: The Mexican government is trying to corral American investment dollars; the North American Free Trade Agreement has investors eyeing what some believe will become a lucrative Mexican real estate market; and there is a general sense of well-being, if not downright euphoria, surrounding the U.S. economy.

``Our economy has been so strong, there is a lot of money floating around out there and there are a lot of people looking to invest,'' said Tim Kruger, vice president of Metrociti's international division. ``And the mortgage business in the U.S. has become more competitive.''

Metrociti started making its first loans in September and has roughly 20 in the pipeline for property valued at about $4 million, he said. The hot markets are resort communities like Mazatlan and Cabo San Lucas.

Real estate experts say American buyers can get a lot of home for their money in Mexico, but shouldn't expect bargain-basement prices.

A large beachfront or ocean-view home in Mexico can be bought for about $650,000. The comparable home along the California coast would cost more than $1 million, Kruger said.

``They are not exactly giving them away. The prices are surprisingly high in some areas compared to what you would expect,'' he said.

So far about a half-dozen U.S. companies have started making the loans, which typically require a 20 percent down payment.

Transaction fees also can be higher, up to 10 percent of the loan's value compared to about 3 percent in the United States.

That in itself is quite a change. Previously, if an American citizen wanted to buy property in Mexico it was usually an all-cash transaction or involved finding a seller willing to finance a loan.

Traditionally, Mexico always has been a tough market to crack.

The country's constitution technically prohibits foreigners from buying property in what is known as a ``restricted zone,'' a broad area that spans half the country and includes land within 31 miles of the coast and 62 miles of the border.

There are loopholes, though.

In 1973, Mexico established what is known as a fideicomiso, which operates like a bank trust.

A foreign investor can buy a piece of property with the title held by a Mexican bank and placed in the fideicomiso. The investor got all the beneficiary rights to the property, which for all intents and purposes is ownership for 30 years.

In 1994 the government extended the term to 50 years, and it can be renewed in writing and passed on from generation to generation.

It also means that foreclosures do not have to go through the Mexican judicial system, which makes that process similar to what is used in the United States.

That's one of the main reasons U.S. mortgage companies are looking south for new business.

``There was a perceptual problem of lending in Mexico and being concerned about the viability of the documentation, being able to secure the title and the foreclosure process,'' Kruger said.

As the Mexican government was altering its requirements, the economies in both countries started improving. NAFTA helped, too.

``This had a real impact. It was something you could put your hands on and it legitimized doing business in Mexico,'' he said. ``A lot of U.S. companies have moved some operations down there.''

Even so, those involved in the market stress a cautious approach.

``The biggest problem is if someone leaves their brains at the border and they do not have a property title search,'' said Paul Wylie, Metrociti's president. ``You could lose your down payment or worse.''

Another thing to consider is that the real estate business in Mexico is largely unregulated.

Ari Feldman, an international property specialist based in Mexico City, said buying property there also can take longer, generally between 60 and 90 days. He also suggests learning as much as possible about the person with whom you are negotiating the transaction.

``It's a contact game. The worst thing an American can do is come down here and buy real estate from someone they don't know. And it's the same thing for a corporation,'' said Feldman, who has worked in Mexico since the 1970s.

Also important to remember is that business is conducted differently in Mexico.

``In Mexico, business is done between friends,'' he said. ``In America, if we like each other, we go play golf afterward. In Mexico, we go play golf first.''

Steve Goddard, reciprocal director for Mexico at the National Association of Realtors, suggests dealing with someone who belongs to the Mexican Association of Realtors, which has about 1,000 members.

``One of my goals this year is to work with them and try to get some sort of licensing in Mexico like in the U.S.,'' he said. ``That's one of the things that Mexico hasn't had.''

Just how many American dollars are being invested in Mexico is hard to say.

Mike Hart, vice president of Collateral International Inc., a subsidiary of Collateral Mortgage Ltd. of Birmingham, Ala., said no group is tracking market activity. But this year he expects Mexican banks to make about $100 million in real estate loans, not large by U.S. standards.

``It's just a matter of education right now and understanding the product. There definitely is a market for it,'' Hart said of mortgages for Mexican land purchases.His company also offers financing construction of a new house but requires a 30 percent down payment.

Collateral started making loans to Mexican citizens two years ago and this year began making loans to Americans.

Like Metrociti, the company draws customers from all over the country, but most are from California and Arizona.

What's the attraction? The old real estate axiom of location.

``There is so much available beach property,'' Hart said. ``If you fly from L.A. to Cabo, all you see is mile after mile of untouched beaches.''

Access, though, is a problem. Mexico does not have a network of roads and sewers in most of these areas, but that should come as the tax base builds up, Hart said.

But whether these companies will ever make any money remains to be seen.

``It's very new,'' Metrociti's Wylie said of the market segment. ``We knew it would be a long-term project for us, but we expect it to be profitable by next year.''

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Photo: (Color) Paul Wylie, left, and Tim Kruger make loans to Americans to buy property in Mexico.

John McCoy/Daily News