Buyer had FedEx stop package in route. How to handle?

[homedeals16]

I checked the tracking on a package I send on Monday and it made it about half way and now it is being returned to me.  I called FedEx and they said the buyer called them to say that her PayPal account had been hacked and his was an unauthorized order, so they turned it around.

For the sake of this discussion, let's assume she is being truthful.

The item was sold with free shipping and no returns accepted.

I haven't heard from the buyer yet, but I'm sure an unauthorized claim is coming.  I will probably contact her tommorow.

What I would like to do is initiate a cancelled order (at buyer's request) and refund the full amount minus the actual shipping costs once I get my item back.  The buyer can file an unauthorized claim for the balance, which Paypal or Ebay can pay if they allowed her account to be hacked.

Questions:

1) Is this the "right" process?

2) What are the odds I'm going to eat the shipping costs.

[southern*sweet*tea]

IF the buyer does file an unauthorized claim, all you have to do is show proof of SHIPPING to the Paypal address. You don't have to prove delivery.

Since the buyer in essence refused the package they've lost their MBG.  I would do NOTHING until they file an unauthorized claim, then present Paypal with the tracking information.  Don't cancel the order until you have your package returned to you.