I am very sorry to hear this- the DMV actually has jurisdiction over disputes involving dealer fraud/misrepresentation. A complaint can be filed here:
Since a dealer must not report inaccurate or fraudulent information to the DMV, reporting a lien when there is not one would fall within the jurisdiction of the DMV.
Another option would, if one is in a hurry, would be to pay the money and then sue in small claims (jurisdiction over disputes less than $10000)
http://www.courts.ca.gov/selfhelp-smallclaims.htm (small claims does not have jurisdiction to order specific performance alone-ie to order the dealer to remove the lien at no cost)
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