Now the B.S. begins

This is a tough situation.
There is no easy answer. If you give up, they win.
If you persist, than maybe you get car back.
If you get it back,from what you describe,theres no funds to do anything with it.

Most logical? Maybe not.
Stepdaughter coughs up 3 grand, you help new buyer with title and move on. New buyer must be stressed out too. Also a victim,cops are on his side,hence the suggestion of garage keeper’s lien.
But owner must have a business in order to file a lien,as well as proof you agreed to store it.

Under same act,you can likely force him to sell it for storage cost and give you the balance.
Thats how it works, based on fair market value.

Edit:
That cop is an asshat,for even suggesting you pay storage on a car that was stolen.