"You can't apply this logic going forward. Possession is 9/10th of the law. That would be like buying a stolen car 4 years ago but you were had the right paperwork that was forged. The car is now registered and recognised as yours. Now 4 years later the old owner wants it back. Dont think so. The law is on your side. You keep the car."
My understanding is that you can not own stolen goods. In your example the person who sells the stolen car can not transfer ownership as they never had it (regardless of what paperwork is created). Ownership remains with the person the car was was stolen from. That ownership where the car was insured passes to the insurer if the owner accepts the insurers payout. If you are found to be in possession of the stolen car and the owner (whether it be the former owner or the insurer)makes claim to it the law will require you to return it and your only course of action is to pursue the person who sold you the stolen car to get you money back.
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