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Ask him what is wrong and how he determined it. Then post it here. There's a lot of folks who are real knowledgeable and can help you determine a path forward. But that's near impossible without actually knowing what's wrong.
Asheville engines seems to be popular if you need a remanned short or long block.
Unless there was a written warranty between the buyer and seller, the deal is treated "as-is".
I got burned bad too on my first diesel. It was a 2001 f350 7.3. "142k miles, runs great". It did run well when it was being babied. The odometer was either swapped or rolled back. Actual mileage was 350k+. It had HPO issues, was dusted from a broken stock intake, among other issues. I never tried towing with it because it couldn't push itself up a hill at 65mph, even with the 4.10 gears it had with stock sized tires.
I ended up selling the piece of crap for half of what i paid for it after throwing all the possible cheaper possible solutions at it with no luck. When i tried contacting the seller, no response. A friend of mine who knows those type of laws very well told me it was an "as-is" deal done through craigslist and i got burned. There was nothing i could do but cut my losses. I was honest about the issues when i sold it and was lucky to get half what i paid for it. It still took 4 or 5 months to sell.
Sorry to hear about you getting burned too. I sold cars/trucks successfully for a while before settling into my current career and have seen too many people trying to trade in vehicles they got burned on, both from shady dealers and private party. I can't stand dishonest sellers or thieves. A lot of my success selling cars was from honesty and earning my customers' trust. I didn't get rich off every deal i made, but i sure made a lot of deals and had a lot of referrals as a result.
I had my choice of used engines for $2300-2600 a year ago when I needed one. They aren't that hard to find. I went with the $2300 one and it runs like a champ.