Breeding from an outgrown mare or an unsound mare (such as yours) is OK if she was a good riding horse, has basically good conformation and no genetic issues but unless you are planning to keep the foal for yourself you might find that you struggle to sell at a profit and if you are forced to sell at a low price there is no guarantee of where it will end up
When I first started my own operation I would not use an unsound mare for breeding. My thoughts on that were, if she broke down at the track and wasn't sound for use by the time she was 3 or 4, I didn't want to pass that on. My TB stallion raced, won, retired sound and died at age 22, still sound. He went out for play time on his last day, ran like the wind and dropped dead at my feet. I wish all horses could die such an easy death, at an old age. He sired a number of horses who went to the track, raced and retired sound, so those genetics worked.
I would not have used the one 'unsound' broodie I have, except back when she got injured a chip fracture was considered carreer ending and she was only 4 months old at the time. It wasn't bad tendons or genetic conditions that caused her unsoundness. In today's improved vet care, I'd bet she wouldn't be considered unsound, she'd have been considered fine after 6 or 8 weeks and put back to work. Like I said, she's never taken an unsound step since she healed up from the injury, but back then they said never to try to ride her.
A horse that's been ridden regularly and injured on a fluke, I wouldn't have a problem using, but back in the track days no way would I take those broke down mares (they were just young, 3 & 4 and finished).