The typical cause is corrosion and eventual failure of the 'butterfly' catch that holds the heater element into the engine block. This is one of the many reasons for complete antifreeze flush and renewal every two years - something the previous owner apparently didn't do.

Your engine may have survived - but it's been subjected to serious heat stress. The knocking noises are a bad omen, but don't write it off until your mechanic has checked it thoroughly. Have him do a compression test first - if it passes that, he can try filling it with coolant and check its function while running.
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Bob (son's 81-244GL B21F/M46, dtr's 83-244DL B23F/M46, my 94-944 B230FD and 89 745 (LT-1 V8); hobbycar 77 MGB, and a few old motorcycles)