If I were your neighbor I would be embarrassed beyond belief!! I would be ashamed that a former cat of mine hated and feared me that much. I'm shocked that she is so willing to do the things you ask her to.
I think it's great that you are helping Midnight realize that she won't ever have to go back there.
Poor baby really hated living with that woman didn't she? I think the one smart thing your neighbor has said is that Midnight belongs with you!!