What to do in this situation is going to have to come from someone that knows the laws in your state.
You might contact the DMV and see if another title was issued and sent to the owner with the lien on it. If there was then the seller frauded you and the police can get involved.
This is what I would do. If the title has no lien holder you should be able to transfer it. You might want to try to contact who ever holds the lien. Often times they will settle for a small percentage of what is owed....
