No one looked up the motor part number? It's a $9,000 MSRP long block they're charging him $5,500 for. OP, the first thing I would have done was drive the 50 miles to this dealer AND LOOK AT IT! Go to any local new car dealer or independent shop, find a motor ASE-certified mechanic and pay him to go with you to look at it, since you don't have the ability to determine if the block is trashed. If the repair dealer is using your motor as a core credit then it's probably repairable, or they're going to hit you with, sorry when they got the core it wasn't usable and you owe us another $3,500. You might want to look up the term, mechanic's lien.
https://parts.vw.com/p/Volkswagen__/LONG-BLOCK/65122836/06K100034J.html?
https://parts.vw.com/p/Volkswagen__/LONG-BLOCK/65122836/06K100034J.html?