Bought a stolen car, contacted owner?

[Mark]

I bought a stolen car from a dealer in january this year, some 7 weeks later i was driving thru london when i was surrounded by 5 police cars and told to get out of the car' before i could i was pulled out by two police officers and arrested for stealing the car. After around a hour i was told that i could drive the car home and my local police would be out to see me which they did the next day to check the car over to see if it was the one they were looking for, my luck it was so i phoned the place i brought it off and they wont give me my money back saying it was not stolen when i brought it, what a joke.. anyway i received a letter from manchester police saying the matter was now out there hands and i have to find a lawyer to fight my case in a civil court, in the letter was the owners address and phone number so i phoned it and spoke to him, after a long conversation he wanted 1500 pound off me to sign the car over but i asked if he had claimed off the insurance and he said he had not as being a car dealer it will bump his premiums up, how do i find out if the insurance has paid out on this car as i feel he is trying to make money from me..please help it's all getting too much.