July 2015 Flood Final Rule – For the detached structure exemption, what is meant by the detached structure not “serving as a residence?”

Compliance > Lending > Flood > 2015 Flood Final Rule - Detached Exemption
Q:  With regard to the detached structure exemption, what is meant by the detached structure not “serving as a residence?” 
 
A:  “Not serving as a residence” means that, based on a lender’s good faith determination, the structure is not intended for use or is actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
 
The preamble to the final rule included this discussion:    “Instead, the Agencies have concluded that a more practical approach to applying this exemption is to rely on the good faith determination of a lender on whether a detached structure serves as a residence.  The Agencies believe the lender is in the best position to consider all the facts and circumstances involving a detached structure securing a loan, and this approach is similar to how the IRS evaluates whether property constitutes a “residence.”  In making this determination, as suggested by several commenters, the lender should focus on a structure’s intended use.  By focusing on the intended use of the structure, a lender could determine objectively whether a structure could serve as a residence and therefore not qualify for the exemption.
 
The Agencies note that the IRS definition of “residence” provides that a residence generally contains sleeping, bathroom, and kitchen facilities.  The Agencies agree that a structure that serves as a residence would generally have such facilities.  Therefore, a lender could examine the structure for the presence of these facilities to make a determination of whether it serves as a residence.”
 
 
 

This can be found in the July 2015 Final Rule on Loans in Areas Having Special Flood Hazards, here:  https://www.federalregister.gov/articles/2015/07/21/2015-15956/loans-in-areas-having-special-flood-hazards

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