The way Section 8 works is that

The state will pay a portion of the monthly rent, and the applicant pays the rest. You were supposed to ask for $1550 and let HUD pay $1200 and the tenant pay the rest.

I would suggest that you contact HUD office and tell them your story and show the email agreement to the HUD. You may have to just say that you didn't understand how the Section 8 renting works and made an honest mistake by only stating the rent was $1200.