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I am looking for clarification regarding the exemption and term “used as a residence”. Paragraph c states that any structure on residential property securing a loan located in a SFHA is exempt if it is part of residential property, is detached, and does not serve as a residence. In paragraph (3) I see that serve as a residence is defined, but I how do we interpret that? Is it saying if there is a bathroom, kitchen, or sleeping space, the detached building serves as a residence? Or is it saying the bank can determine for itself? The building in question is a cabana/pool house detached from the residence with a kitchen and a bathroom, with a roof and 4 walls. It appears that generally na pool house would be used while using the pool, but could someone live there, I would say yes.
I realize a bank can choose to require flood insurance on a cabana/pool house, but I am trying to determine the flood law requirements to assist in advising management.
(3) ‘‘Serve as a residence’’ shall be based upon the good faith determination of the FDIC-supervised institution that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
The rule requires the financial institution to make the determination, using the definition of a residence. We and many others have sought clarification of the definition since the date of initial publication. Unfortunately, the agencies have not provided the clarification and the interagency proposed definitions do not even address the definition. The safe position is to use the current definition which states that a residence is a structure that is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities. You institution may, in good faith, determine that the structure is intended for use as a pool house and is not intended for use or actually used as a residence.
If the property included a guest cottage that was used as a pool house once the pool was added, that structure was intended for use as a residence. A structure built for use as a pool house, that is only used as a pool house, is not a residence simply because it has a kitchen and and bathroom.
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