Very simply, Whenever I try to change the Z coordinate of a section of water so that it is under a ground, it will not pay attention to it. It may appear underneath the ground in Map Editor, however when I try validating the map or testing it in the Tribe House, I get the same result, the water appears over the ground(s).

In map editor

In Tribe House

Yeah it's a known bug, has been like this since water was added to the map editor :(

Indeed, this has been around like forever and the only way to make the surrounding grounds appear in front of the water ones is to set the other grounds as foreground and adjust their Z values as well.

As to whether or not it's a bug, I would say it's not. The animation of water has always been in foreground; for mice, objects and grounds.