PS:

This is probably not so much of a Catch 22 as it first appears to be. CA titles can be issued that place the vehicle in a condition known as Planned Non-Operation (PNO). Although the title is transferred to a new owner (#2), a new registration is not created.
Often what stands in the way of a title transfer is an accumulation of unpaid, past-due fees and penalties that are quite expensive.
A direct inquiry to the Cal. DMV would be necessary to answer the wavier question.