Your compliance department is leading the bank down a very bad road.
"Serve as a residence" shall be based upon the good faith determination of the member bank that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities.
What the borrower actually does with it not a qualifier - I would assume that your appraisal identifies it as a guest house, which is the "intended use" of the building regardless if the current owner is just using it for storage. Hope your compliance department has a slush fund to pay the fines.
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