When I close on a DC mortgage in the middle of the month, can the lender still charge me interest at closing for the days between closing and the start of the next full month?

Plain-English summary

When you close on a DC mortgage in the middle of a month, you do not start paying regular monthly mortgage payments right away. Most loans schedule the first regular payment for the first day of the month after the next full calendar month following closing. So if you close on March 15, your first regular monthly payment (covering principal and interest for April) is due May 1.

But interest accrues on the loan from the day funds are disbursed (March 15 in the example), not from April 1. The lender wants to be paid for those "odd days" between closing and the start of the first full month. Traditionally, lenders collect odd-days' interest at closing as a separate line item.

In 1986, the DC Council enacted the Real Property Wet Settlement Act of 1986 (D.C. Law 6-186), modeled on Virginia's Wet Settlement Act. The "wet settlement" name refers to the requirement that loan funds be available ("wet money") at closing, not promised for delivery later. The Act protects buyers and sellers from delay games and prevents lenders from collecting interest before they actually fund the loan.

The drafting of the Act went through several amendments. An early version (in committee) said the lender could not collect interest "until the lender has been without use of the money for at least 30 days." Councilmember John Ray spotted that this would block odd-days' interest entirely (a much bigger consumer-protection move than the bill intended). Ray offered an amendment to swap that language for a more limited rule: lenders cannot charge interest until disbursement and closing have occurred, and cannot require interest payments in advance. The amendment was adopted.

Several months after the Act took effect, Councilmember Ray asked Corporation Counsel Frederick Cooke whether the Act, as enacted, blocks odd-days' interest. Cooke read the Act and the legislative history and answered no. The Act prohibits charging or collecting interest before the closing-and-disbursement event. Once those happen, interest accrues from the disbursement date forward, and the lender can collect odd-days' interest at closing as it always has.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Can the lender charge interest from before disbursement? A: No. The Act bars charging or collecting interest until both disbursement of loan funds and loan closing have occurred (Wet Settlement Act § 4).

Q: What did the opinion mean by odd-days' interest? A: It described interest covering the days between loan closing and the start of the first full month for which a regular payment would be made. It did not prescribe a calculation formula.

Q: What if my closing is on the first of the month? A: The opinion discussed interest for the interval between closing and the first full payment month. It did not decide the payment schedule for a loan closing on the first day of a month.

Q: What about points and fees?
A: Points, loan fees, origination fees, service charges, and investigator's fees are not "interest" under the Act and can be collected at closing. The Act expressly carves them out.

Q: Did the opinion address remedies for a violation? A: No. It interpreted when interest could be charged or collected under the Act, but did not analyze a borrower's remedies.

Q: Does the opinion establish what lenders may charge today? A: No. It interpreted the Wet Settlement Act as enacted in 1987. It does not establish whether later changes affect the collection of odd-days' interest.

Background and statutory framework

DC's Real Property Wet Settlement Act of 1986 (D.C. Law 6-186, effective February 24, 1987) was enacted to address abuses in the residential mortgage settlement process. Before "wet settlement" laws, lenders sometimes promised loan funds at closing but did not actually disburse for days afterward, leaving sellers, buyers, and intermediaries waiting. Some lenders also collected interest from a date earlier than actual disbursement, effectively double-billing borrowers.

DC modeled its Act on Virginia's Wet Settlement Act (Va. Code § 6.1-2.12 (1950)). The core requirement: the lender must disburse loan funds to the settlement agent at or before loan closing, and cannot charge or collect interest until disbursement and closing have actually occurred.

Section 4 of the DC Act, as amended on November 18, 1986 by Councilmember John Ray's floor amendment, reads:

Sec. 4. Duties of lender. A lender shall, at or before loan closing, cause disbursement of loan funds to a settlement agent. A lender shall not receive or charge any interest on a loan until disbursement of loan funds and loan closing have occurred, and shall not require payment of any interest in advance. For purposes of this section, the term "interest" means any compensation directly or indirectly imposed by a lender for the extension of credit for the use or forbearance of money as defined in section 28-3311 of the District of Columbia Code, except that for purposes of this section, the term "interest" shall not include any loan fee, origination fee, service and carrying charge, investigator's fee, or point under section 28-3301(e) of the District of Columbia Code.

The phrase "shall not require payment of any interest in advance" was the source of the question. Read alone, it could be read to ban all advance-paid interest, including odd-days' interest. The Corporation Counsel concluded that, in context, "in advance" means "in advance of disbursement and closing," not "in advance of any monthly payment."

Three pieces of legislative history support that reading:

1. The earlier draft. The bill as reported by the Committee on Consumer and Regulatory Affairs read: "and shall not be entitled to collect interest payments until the lender has been without use of the money for at least 30 days." Ray's amendment struck that language. The clear sense was that the original language banned 30 days of advance interest (which would include odd-days' interest), and the amendment narrowed the prohibition to interest before disbursement.

2. Ray's vote-and-information sheet on the amendment. It said the amendment's intent was to "clarify that lenders shall not require interest payments in advance, but they may require payment of loan fees, origination fees, service and carrying charges, investigator's fees, or points in advance of making the loan money available." This identifies "in advance" as "in advance of making the loan money available," that is, in advance of disbursement.

3. Ray's memorandum to colleagues. It said the bill as approved at second reading wrongly prevented "lenders from collecting points, service charges, and other fees related to a loan in advance of making the loan money available," and the amendment was "to correct a technical error" so that "the related fees may be collected in advance, but interest payments may not." Again, "in advance" means in advance of disbursement.

The Corporation Counsel also noted that the broader interpretation would conflict with the scheme of the Act, which is targeted at prompt disbursement, not at limiting all interest collection. The Interest Rate Ceiling Amendment Act of 1983 (D.C. Law 5-62, D.C. Code § 28-3301) is the broader DC consumer-protection lending law; the Wet Settlement Act has narrower aims and should not be read to import the full breadth of interest-rate consumer protection.

The conclusion: odd-days' interest is permissible. The Act bars interest before closing, not interest from closing onward, and Section 4's "in advance" clause is best read as reinforcing the closing-and-disbursement trigger, not as an independent prohibition on odd-days' interest.

Citations and references

Statutes:

• DC Real Property Wet Settlement Act of 1986, D.C. Law 6-186, D.C. Code § 45-2801 et seq.; § 4 (lender duties)
• D.C. Code § 28-3311 (definition of interest)
• D.C. Code § 28-3301(e) (carved-out fees)
• DC Interest Rate Ceiling Amendment Act of 1983, D.C. Law 5-62, D.C. Code § 28-3301
• Virginia Code § 6.1-2.12 (1950) (Virginia Wet Settlement Act, model)

Legislative history:

• Report on Bill 6-60, Committee on Consumer and Regulatory Affairs (September 25, 1986)
• Councilmember Ray vote-and-information sheet on November 18, 1986 amendment
• Councilmember Ray memorandum to colleagues, November 18, 1986

License

This opinion is published by the Office of the Attorney General for the District of Columbia. Per the DC.gov terms of use, content is licensed under Creative Commons Attribution 3.0, which permits commercial use, redistribution, and modification with attribution.

Source

• Original PDF: https://oag.dc.gov/sites/default/files/2018-02/Opinion-July-2014-Real-Property-Wet-Settlement-Act.pdf

Original opinion text

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(6ntttfttmttd nf t1Jt listrid nf Cttnlmnbia OFFICE OF THE CORPORATION COUNSEL DISTRICT BUILDING WASHINGTON.

D. C.

20004

IN REPLY REFER TO:

L&O:RND:gbt
(87-56)
Apr; 1 2. 1 987

OPINION OF THE CORPORATION COUNSEL
SUBJECT:

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Advance Payments of Interest under
the Real Property Wet Settlement Act

The Honorable John Ray
Council of the District of Columbia
District Building
1350 Pennsylvania Avenue, N.W.
Washington, D.C.
20004
Dear Councilmember Ray:
This is in reply to your request, dated March 23, 1987, for advice concerning the Real Property Wet Settlement Act of 1986, effective February 24, 1987 (D.C. Law 6-186; to be codified at D.C. Code § 45-2801 et seq. (1987 Supp.) (the "act"». You ask our opinion on whether the act would prohibit the collection of "odd-days' interest" once loan funds have been disbursed. For the reasons stated below, it is my opinion that the act does not prohibit such a collection. Your question arises from the following circumstances. Prior to enactment of D.C. Law 6-186, regular monthly payments on most real property mortgages that were closed after the first day of a month were scheduled to begin on the first day of the month following the first full calendar month after closing. For example, if a particular closing occurred on March 15, the first payment, covering principal and interest for the month of April was due on May 1. Interest for 50-called "odd days", the number of days between closing on March 15 and the beginning of ·the first full month, April 1, was traditionally collected at closing.

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In order to ascertain the effect that the act may have on the collection of "odd-day's interest" it is necessary to look at the wording of the act and its legislative history.

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Section 4 of the act reads as follows:
Sec. 4. Duties of lender. A lender shall, at or before loan closing, cause disbursement of loan funds to a settlement agent. A lender shall not receive or charge any interest on a loan until disbursement of loan funds and loan closing have occurred, and shall not require payment of any interest in advance. For purposes of this section, the term "interest" means any compensation directly or indirectly imposed by a lender for the extension of credit for the use or forbearance of money as defined in section 28-3311 of the District of Columbia Code, except that for purposes of this section, the term "interest" shall not include any loan fee, origination fee, service and carrying charge, investigator's fee, or point under section 28-330l(e) of the District of Columbia Code. I have examined the definition of the word "interest" and am of the view that "odd-days' interest" is "interest" because it is compensation directly or indirectly imposed by the lender for the extension of credit for the use or forbearance of money, as defined in D.C. Code § 28-3311, and because it is not a "loan fee, origination fee, service and carrying charge, investigator's fee, or point under section 28-330l(e) of the District of Columbia Code." The second sentence of section 4 prohibits a lender from receiving or charging "any interest on a loan until disbursement of loan funds and loan closing have occurred." The underlined terms are given the following meanings in sections 2(4) and (6) of the act: "Disbursement of loan funds" means the delivery of loan funds by a lender to a settlement agent • • •

"Loan closing" means that time agreed upon by a borrower and a lender when the execution of the loan documents by the borrower occurs. The second sentence of section 4 also provides that a lender "shall not require payment of any interest in advance." Standing alone, this clause would be ambiguous. However, viewed in the context of the legislative history and the scheme of the act, this clause merely reinforces the first clause of the sentence: that is, the lender cannot require payment of interest in advance of executing the loan documents with the borrower and delivering the loan funds to a settlement agent •

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The ~hrase in section 4 of the bill as reported by the Committee_I read: " ••• and shall not be entitled to collect interest payments until the lender has been without use of the money for at least 30 days." In the legislative session of November 18, 1986, you offered, and the Council approved, an amendment which struck that language and added the current language. The vote and information sheet on this amendment gave the following rationale: The intent of this amendment is to clarify that lenders shall not require interest payments in advance, but they may require payment of loan fees, origination fees, service and carrying charges, investigator's fees, or points in advance of making the loan money available.
[Emphasis supplied.]
Your memorandum dated November 18, 1986, written to Councilmembers as Chairman of the Consumer and Regulatory Affairs Committee regarding the amendment, gives a similar explanation: At the legislative session this evening, I will move to reconsider Bill 6-60 in order to move the attached amendment. This is necessary to correct a technical error in the bill as approved at second reading. As approved, the bill prevents lenders from collecting points, service charges, and other fees related to a loan in advance of making the loan money available. However, the intent was to prevent advance collection only of interest payments, not the related fees. This amendment makes clear that the related fees may be collected in advance, but interest payments may not.
[Emphasis supplied.]

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The interpretation of this language in your statements is consistent with the intent of Councilmember Shackleton in introducing the bill, to use the Virginia Wet Settlement Act as a model. Virginia Code § 6.1-2.12 (1950) clearly bars receiving or charging interest only "until disbursement of loan funds and loan closing has occurred." This interpretation is also consistent with the entire scheme of the act, which does not attempt to enact the sort of broad prohibitions contained in sec. 2 of the Interest Rate Ceiling Amendment Act of 1983, D.C. Law 5-62, as amended, D.C. Code § 283301 (1986 Supp.). Rather the scheme is to encourage prompt disbursement of loan funds by prohibiting the lender from doing certain things until he disburses the funds.

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Report on Bill 6-60, Committee on Consumer and Regulatory Affairs, the "Real Property Wet Settlement Act of 1986", September 25, 1986.
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In summary, the act does not prohibit a lender from charging or receiving odd-days' interest once the lender has' executed the loan documents with the borrower and delivered the loan funds to a settlement agent.

Counsel, D.C •

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