With a constant increase in Heat Pumps (HP) use it has become of great importance the application of Fault Diagnosis (FD) methods to detect faults at an early stage and thus ensure a proper working condition and improve reliability of the equipment. Based on that, the present paper addresses a FD and retrofit of a water-to-water HP unit. The faulty equipment, completely out of operation, was entirely analyzed and a catastrophic failure in the three-phase compressor was identified. After identifying the faulty component, it was concluded that it should be replaced. Thereby, an adequate solution for this HP is retrofitting with a smaller capacity compressor, which is more suitable for the considered environment. The replacement is also motivated by the fact that the equipment cannot even be started without tripping the circuit breaker. To detect and identify the faults, the electrical part was analyzed first, starting with the verification of the components in the electrical circuits. After that, the resistance of each one of the windings was measured and it was concluded that they were out of the manufacturer’s specification. The process of retrofitting with a new unit followed some steps. First, it was considered the thermal loads required for the environment and then, a suitable compressor capable to fulfill such requirements was selected. This selection considered the compatibility with the other system components. Finally, to avoid future faults and failures, after retrofitting with the new compressor, temperature sensors will be installed to be used as a basis for virtual sensors which enable an efficient FD approach.