I have an ongoing saga that I will try to sum up briefly, and end with a few questions.

I bought an FHA backed home in Baltimore in 2009 as a young professional, thinking I was making a good financial decision. I lived in the property for five years, and moved on to buy another home when my growing family could no longer fit in the Baltimore house. I tried to sell the property, but it was so far under water that it was not possible. I rented to a couple firemen for a year with no problems. After they left, my new tenant immediately stopped paying, and it took me almost six months to evict her. During that time, I was unable to carry the note and fell behind.

I started the Short Sale process with my lender, and we got all the way through the loan modification denial before they realized and told me I was unable to participate in the program because the house was not owner occupied. I asked and received approval from both my lender and HUD to move back into the property.

So I moved away from my family to comply with these rules and started the program again. Only now I was just notified I DO qualify for a loan modification (just a few months ago I didn't). A modification does nothing for me, as I still won't be able to carry the note. Also, I did not realize that I was violating FHA rules before by renting the place, and luckily was under their "18 month" rule, so i cannot rent again. We have just submitted a Variance Request to see if I can bypass the modification. So, a couple questions...

Are there any ways to move on to a short sale if you've been approved for a loan modification instead?

If not, is my only option foreclosure?

If all else fails and I have to foreclose, will I be liable for the deficiency judgement? The FHA Hotline is saying absolutely not, unless there is some type of fraud; however, I am reading some places that non-recourse states will still attempt to sue you.

Any info or advice would be much appreciated. Thanks