Termination statements are documents that release the claims that lenders have on the assets pledged by borrowers as collateral in exchange for loans. The termination statement is normally drafted and executed within thirty days after the borrower has paid off the full balance of the loan. A termination statement serves as the official nullification of the previously issued financing statement that established the right of the lender to specific assets of the borrower in the event of a loan default.
The use of a termination statement is common in many types of asset-based lending. Often, the collateral or security obligation provided by the borrower is the asset that is acquired with the proceeds from the loan. In exchange for covering the cost of the asset with a loan, the lender places a lien on the asset. The lien remains in effect until the loan is paid in full by or on behalf of the borrower. Once the loan is paid in full, the lender is required in many cases to file the termination statement as a means of clearing the lien from public records.
Depending on the location, lenders may have up to three months to issue a termination statement. Many lenders begin the process of creating and issuing the statement immediately upon posting the final payment on the loan. Other lenders generate the statements in blocs on a monthly or semi-monthly basis. When produced in blocs, the statements are generated to cover a specific time frame and will include all loans that were paid in full during that period.
The termination statement is an important document for the borrower. For this reason, the borrower should always verify the procedures used by the lender to issue the statements. Because the termination statement essentially is a document from the lender that verifies the loan is paid and the lien is now voided, it is imperative that the borrower make sure the termination statement becomes a matter of public record. Failure to do so can have an adverse impact on the borrower’s credit report.
