When you apply for the V5 (on a car that isn't registered to you) don't they write to the current registered owner and give them chance to 'claim' the car? If they don't hear from the current registered owner then they issue the V5 to you as you've applied for it?

You can't tax, insure, scrap or sell/transfer a car without the V5 these days so i'd personally say posession is 9/10ths! If you have the vehicle AND the V5 there's very little anyone can do. DVLA won't (as i understand it) issue a new V5 to someone without contacting the current registered keeper first so if they haven't taxed, insured or looked after the car AND they haven't updated the V5 (or can't be bothered replying to the DVLA) - then why not make it yours before someone else does (including the police) or it gets wrecked in another way.