Short Sale With Tenants Inside (in NY)

Here's the situation:

2-family House bought last Dec 2002 for 255k. Owner bought house, and let her 'friend' move in. He lives in one unit, and is renting out the other. He is responisble for paying the mortgage (i know i can't belive it either). Perfect candidate for short sale. Arrears are huge and I don't know the amount, or the taxes owed either.

Kicker is her 'friend' hasn't paid it since the inception of the loan, and has been pocketing the rent money from the tenants. Now owner (she) is screwed, and just wants out. This is a perfect short sale candidate.

My question is how to approach the tenats for payoff or possible eviction. What good is the short if I am trying to flip, and can't get the tenants out. By the way I believe their is no formal lease, but NY doesn't allow you just to kick people out. Could take 6mo-1yr to evict if necessary.

Ideas?
confused

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