318 Full of Chunks of Rust, How Bad is That?

I guess if to you it's only money( $3k for an unknown 318) Wow. Corrosion, timing cover, anything that coolant passes through. Like someone with high cholesterol and your heart and arteries are plugged up. The whole system has to be in good condition, not just the heart.
Your mechanic is right in not wanting to put his name on something like this.
Just think of what you can't see and cross your fingers.
I would get my money back from the seller and look for another one. You can get a rebuilt engine with a warranty for what you spent. I paid less than (a lot less) that for a remanufactured, replacement 5.7 Gen III Hemi for my Magnum R/T.