Nighmare inside.

My friend traded his mazda3 with an other dude cars last week. (against my advice, it's a 1998 A4 2.8 quattro)

Well, it ends up the audi is a salvage title at the DMV that can no longer be issued a license plate. When he traded the car, the other party handed papers that where in his possession before the car was declared salvage, therefore, the paper my friend has in hands are a clean title and the expiration date is not reached yet. You can imagine he got quite a surprise at the DMV, also, the papers under the previous audi owner's name. (yes.....)

The other party has not changed the ownership or the license plate of the mazda at the DMV yet. He was spotted driving around town with other various license plate (we suspect he has a suspended license, and thus cannot take ownership of the mazda at the DMV)

My friend is an idiot sometimes, and they didn't wrote a sale contract, nor he checked the VIN. They did the trade when the DMV was closed (likely an intentional move from the other party)

I guess we could drop the audi in his driveway, and tow the mazda back home.
Could we report the car as stolen ?
One thing we can do for sure is to declare the car as destroyed/salvage to the DMV, but that would likely put someone else in the same position than my friend is right now.

But there has to be a better way to unfuck the situation right ? That's some kind of theft/fraud.

Need your wise advise, opponauts.

UPDATE 1: We got in touch with the original owner who's name is on the title. He sold the car for 500$ for parts and his the one who noticed the DMV that the cars is no longer drivable. He's willing to write a new procuration so my friend can legally take ownership of the audi. (As per local law he is still responsible for that car, so it's in his best interest that this car is off the road. He was unaware that the crooks was still driving it).