Caran, hopefully this will be helpful to you, there are lots of things which don't appear to be right- firstly a 2.6 MG made in the 90's, the only 2.6 MG that comes readily to mind is the MG WA but that was built in 1939 so definitely not one of those, not really sure what marque it could be, so possibly your seller mis-described in a fundamental way:) Secondly its not the AA's business where you bought the car from, they cover the driver not the car, it's none of their business and not relevant, we broke down with a blow out on the trailer when I went to fetch my XJSC and that was an Ebay purchase- we were perfectly covered as is your hubby- whoever told him that was talking rot and needs to be reported. Thirdly, no-one here in the house ( and we are all into classic cars and DIY mechanicing) can think of a modernish MG that would need it's engine taken out to change the water pump, so as Methyl said, I think someone was yanking his chain.
Your husband is now in a difficult situation as he no longer has possession of the vehicle and did accept it 'as is' but my suggestion is to try to put the frighteners on the chap and send him an official looking 'letter before action', as the threat of court action and a ccj sometimes works with people especially if their credit rating matters to them. A lot of people however simply disregard them entirely. Something like this:-
NOTICE OF INTENDED COURT PROCEEDINGS
Dear Git we bought a car from,
TAKE NOTICE that according to our records you have still not reimbursed for the purchased price of the car we returned to you due to its mis-described and unfit condition.
Unless payment is made to the above address within seven days Legal Action to recover the debt will be taken against you without further notice.
Should our action in court be successful you would also be liable for court costs.
Yours sincerely
You are shooting in the wind with that tbh but it does occasionally work if someone's about to apply for a mortgage or something they need a squeaky clean credit file for and won't risk it.
What is the exact make and model of the car Caran so I can be more precise?