Given the fact that he tried to hose you out of 500, I wouldn't have given him a dime. Its a 24 year old vehicle. Its unfortunate when things like this happen but in the end its a used car.
Sending him $500 somewhat admits responsibility. That might bite you in the ass later.
A friend of mine bought a Dodge Intrepid with a 2.7 in it (we all know about those engines ) with90k miles on it from a guy in Grosse Pointe and when he test drove the car it ran and drove fine so he bought it. The engine lost oil pressure and the engine blew 2 miles down the road. He went back and asked the guy for a refund because of what happened and the guy basically told him he was on his own he bought it as-is.. my buddy sued him and wont $1000 because the guy 1) made prior mention of his mechanical knowledge and said the car runs perfect and 2) the guy didnt make him sign an as-is agreement.
Instead of sending him a check, I would have him come in and sign a release that the $500.00 is in full release and satisfaction of all claims whether known or unknown... yada yada...
Should have spent $100 on a lawyer and gave him $400.
Notarized/Legal letter stating cashing this check releases you of any an all responsibility. Period.