She says they denied her last loan modification.

I asked the town if I could convert the property (on paper) back to a2 fam. but I was denied.

-Judge ruling in tenants favor to not pay rent during periods of "excessive property violations", even though there was clear documentation that the violations were all tenant-caused, and then tenant denied access to the unit to repair the damages.

So the tenant has the right to sublet, and the landlord cannot deny it as long as the new tenant meets their criteria. 

Many years ago I envied a guy we worked with who seemed to have unlimited funds to buy & complete nice rehabs.He then bought a piece of junk two doors down from a Burger King & 2 years after losing his shirt on renting it to students Burger King wanted to expand their parking lot/drive thru & they were offered 3x what they paid.Then the funding guy was revealed to be the current wife's ex husband & when they denied him a bigger piece of the action he blew them into the IRS as nothing was being recorded or submitted on their respective tax rerturns.They arrived home one night to find the investigator (they kept blowing off) waiting in the driveway of their beautiful expensive new build.They certainly got rich quick but lost it & the home to Taxes & penalties.That guy was our maintenance Janitor & he had to keep working until he was 65.

I'm worried that if we do use a hard money loan and after a year we go to refinance for a 30yr fix and we will get denied.

It seems that's how it was portrayed in his earlier posts, so I cannot confirm or deny. 

HOA rules allow rentals right away (at least not denying it).

So if he denies it, then it can become a battle of "he said, she said."

It has spawned hundreds of court cases, mainly due to the HOA wanting to prevent this and variances being denied.