Loan to be secured by a 4-unit apartment building with a detached garage. The apartment building is not in the flood zone, the detached garage is.
I have seen two schools of thought on this scenario. One is where the detached structured is for commercial purpose and therefore commercial property which is not exempt via the detached structure rule. The other school is that the apartment building is residential and therefore the detached garage would be part of that residential property and therefore flood insurance would not be required (safety and soundness being a factor of course).
My question is, has any one had any examiner scrutiny on not having the detached structured flood insured because the interpretation is that it is commercial? Or has anyone had examiner acceptance for not having a detached garage flood insured in a similar or same scenario?

The exemption does not mention a requirement that the residential structure be in a flood zone, just that the detached structures are exempt from the mandatory purchase requirements found in paragraph (c):

12 CFR 208.25 (d) Exemptions. The flood insurance requirement prescribed by paragraph (c) of this section does not apply with respect to:

(3) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.

Here's how we teach this in our training manual:

G. Detached Structure Exemption [§339.4(c)]:
A bank does not have to require flood insurance for qualifying detached structures that do not serve as a residence. However, lenders should account for any safety and soundness considerations.
[Effective 10/1/15]

1. Qualifications:
Each of following must be met:

a. Multiple Buildings:
There must be more than one building on the property.

b. Residence Structure:
One building must serve as a residence (sleeping, bathroom or kitchen facilities).

c. Structure Purpose:
The detached structure(s) must be used primarily for personal, family, or household purposes. However, it cannot serve as a residence (sleeping, bathroom or kitchen facilities).


2. Loan Purpose vs. Structure Purpose:

a. Loan purpose DOES NOT matter.

b. Structure purpose DOES matter.
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As #2 states, it doesn't matter what the purpose of the loan is. What matters is the 3 qualifications and the purpose of the detached building. I think a garage detached from an apartment is for residential purposes.

Thank you, this spells it out beautifully.