The client has an FHA loan through Suntrust Bank. The owners initiated a short sale due to a major loss of income and illness. While under the short sale the house flooded in Hurricane Matthew and they had to find a rental. The insurance covered the damage. HUD just denied the short sale because they stated since the property has been repaired there is no valid hardship or acceptable vacancy reason. Sunwest didn't approve the short sale because HUD denied it based on this reason. Is there anything that can be done to move forward or is this a done deal? Your input is appreciated.

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I would take a look at the seller's financial documents.  FHA may be looking at the amount they are paying in rent and thinking that they could be paying that towards the mortgage.  It may be that FHA wants to get the owners to move back into the home and request a loan modification/workout agreement rather than just let them do the short sale.  If the seller's sent docs directly to the lender then get copies of what they sent so you can review them.  Be sure to look closely at the bank statements.  I have had some sellers say they don't have money to pay but their bank statements show a different story.  

Once you look at the sellers financials you will probably have a better idea if you should just resubmit the short sale with a detailed explanation so FHA can agree to an exception for them not occupying the home, or if the seller needs to move back into the home and try to do some other kind of workout agreement.

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