This of course in not suppose to happen with proper remediation but it is better to be safe than sorry.

I just have to figure out the proper way to work it out..Last year I shot myself in the foot by declaring 'unreimbursed business expenses' that were actual expenses. 

If you have been accounting for this improperly that indeed will need to be cleaned up since it sounds like you may have not given proper credit to the Buyer/Borrower's payment to principal.Stop making this about a regulation that you do not really understand and make it more about what you are doing and how it was actually setup.  

Who ever comes in, brings their deposit, and executes their lease first gets the rental.If they don't make it, offer to put them on a waiting list, and let them know their application is good for x days. 

I will say this..most agents have no clue how to structure it properly. 

Should my rejection letter read something like this:We're sorry to let you know that the property at [address] is no longer available. At this time we've rented this property to other applicants. Thank you.Do I nee...

But, if the property were owned by an LLC (properly filed and maintained), your risk exposure would be insulated by the protection of the entity, leaving only the assets owned by the LLC (as opposed to all of your personal assets) exposed to potential lawsuits and judgments.

I'm not sure you are considering factors such as, off the top of my head: 1) unlike the have-a-pulse-get-a-loan scenarios of yesterday, they are required to have proper debt-to-income ratios and meet reserve requirements so as long as they don't lose their job for an extended period, they've proven they can afford the payment; 2) even in a down market, they will have to live somewhere, so unless rents are much cheaper, which is unlikely, it makes more sense to not ruin their credit, keep paying and stay where they are, especially if they've improved the property at all; 3) these loans are much more likely to be 30-year-fixed, not the ARMs of yesterday that adjusted up to a surprisingly unreasonable payment (many didn't understand what they signed up for until, Wham, the payment doubled on them, so they had to walk); 4) they pay MIP, upfront and monthly, so there is some protection for the lender if they do default.Many of these people would be stuck paying much higher rents, building others' equity instead of building their own, without FHA loans.  

Additional I served on the executive team and had a minority interest in the company.

Ensure you screen properly, take security deposits and get parental co-signers for anyone who doesn't have a strong rental history.