The IRS pretty much works in a "good faith" system essentially beleiving what you indicate on your return is accurate(you are signing that it is so).There is a possibility that you may be audited.

During your physical inspection and due diligence period and also must do a financial audit too.3.

With this FHA loan, you'll be giving up a lot of control to the lender, cutting your cash flow significantly, a ridiculous ~4.5% annual Mortgage Insurance payment, will be subject to annual audits and regulatory costs, and high up-front fees with long closing periods. 

That just screams  "audit me"

Plus HUD only allows you to pull money from an escrow account 2x a year plus you have to pay an auditing fee annually. 

See if you can get a free or low cost energy audit from your power company.  

We have to unless we want some regulator breathing down our necks auditing years of REO sales.Its almost comical with some of the posts I read out there.

Will this be audited and f so, can they find out about our previous home in Spain?

If audited, that might be disallowed. 

But when a refi happens right before a sale and 1031 the IRS has had a tendency to view that as a way of taking profit and subsequently disallowed the exchange if it was audited.