Returned item claim - never received

[jeddie76]

I sold an item that had a tag which was Size 14 for $17, which included free postage. The buyer said it didn't fit and was more of a Size 12. I received a Return Item request which stated that the buyer would pay return postage, so I agreed to accept the return.  She then asked me to pay return postage costing $7.60, which I declined.  A week later she send me a message that the item had been returned to her by Australia Post marked Not At This Address.  It turned out that she had posted it to my work address using my eBay username, not the name which had been on the return address on both the original packaging and my return acceptance.  The mailroom had marked it return to sender.  When I informed her that I would not be paying for her to send it to me again (remember, sold for $17 which was to be refunded, as well as me paying postage once and her demanding two more postage payments), she left me negative feedback claiming I was rude and did not communicate back.  I didn't plan to leave a relaliatory negative feedback for her, and was content to leave things be.

I've now received a reminder from eBay that I need to issue the refund by March 16th.  There's no option to mark that the package never arrived, only to contact the buyer.  I have attempted to do that, however they're not communicating back.

My question is, what will happen from here?  The item sold for $17, on top I paid $8.50 for a prepaid satchel.  I have not received the item back, but will eBay automatically deduct $17 from my account to close the dispute, leaving me $25.50 down and with no item?