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.”