If it were my decision I'd sell or refinance for the long term debt.  

My first glimpse was from Rich Dad Poor Dad (of course) and since I read that book about 2 months ago I've just immersed myself in the Bigger Pockets world.

.- Millionaire Real Estate Investor- JScott's books on flipping houses (can be found here on BP)- Rich Dad Poor Dad - Book on Managing Rental Properties (found here on BP)

You can't make a right or wrong decision since you don't have all the info. 

Let him move out, you fix the unit to your liking, and then rent it at market rate.Make it a business decision.

At the end of the day, regardless of how great your property is most buyers will still base their decisions off comparables.

Rich Dad, Poor Dad and The Richest Man in Babylon are great reads about personal finance.

@Bart Hedgcock   I do not like him because he was wrong about the "internet economy" (tech bubble) and the "decisive war" (Iraq)  and the "Bush miracle" (Great Recession).Also he is not an economist. 

This really isn't the seller's decision it is the bank's you need to have the seller talk to the bank about this or maybe even set up a conference call with the seller and the bank. 

Then make a decision based on what you think is best for you.