Well, clearly there are a range of opinions on the topic ranging from "do nothing" to "buy the car back". She has taken it to a mechanic who claims that the tranny needs rebuilding and that it will cost $1700 and she is asking me for $850. Honestly, I had no idea that it was that bad. It's extremely unlikely that she is trying to scam me, but at the same time, transmission places have a very bad reputation for scamming customers, particularly those that come in saying "some other guy is going to pay half".
My asking price was $11500 and I sold it for $11000. I could have probably just held my ground on price and she might have bought it anyway. My proposal to her is to say that I don't have to give you anything, but out of the goodness of my heart and because I feel bad I'm going to give you $350 which, in addition to the $500 discount, makes $850. Take it or leave it. If you leave it, you can try to take me to court after which I would likely have to pay nothing.
Like some said, I'm not interested in doing the bare legal minimum because I do feel bad for her, but at the same time I'm not interested in totally bailing out someone who really didn't do anything to independently check the car (whether I said anything or not about any potential problems).
That said, I think she is kind of delusional. She said she used to work in an auto shop!
Here's another quote from her email:
"I have seen these kinds of court cases, I ran an automotive shop for five years. I can attest to the verdict being in favor most of the time to the buyer, because of the fact that this specific information was never disclosed by the seller during/throughout the sale."