This is a further example where properly understanding all the contractual details of an offer/purchase and sales agreement need to be fully examined and comprehended. The lender is under no obligation to pay for this expense, it's you who is seeking their funds to purchase an improve the property and HUD is not going to involve themselves with improvments/repairs/upgrades to sell a property. This is why I said to review all the documents provided to you prior to offer to see if any mention is made of this, but at the end of the day it's just an expense that will get passed on to you as the buyer of a foreclosed/HUD property. Hopefully you can overcome/accept this expense and enjoy your new home.
We seem to be getting the run around from the person we are dealing with at the bank.
One of the reasons the HUD properties are priced so attractively is that items like this can come up, the property may need repairs/upgrades etc. You should refrence the disclosure documents that were produced by the HUD inspection of the property prior to marketing, your own home inspection and any issues that your appraisal might have brought up. That might be where the issue is and more investigation could be done with you home inspection and the appraisal report.
Hope that helps,