Go to DMV, have them check to see if the car is registered to anyone (sounds to me like you have already done this). Then once you have had it checked that it isn't, file a abandoned vehicle form for a new title. This whole process takes about 3-6 months, so be prepared to wait. DMV should be able to help, go ask them again.

Oh and your friend with the body shop is lying to you, he can do it probably just doesn't want to.