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I believe that no matter what you say if this went to court you would lose the domain. Stop screwing around and give it to them to avoid the bad reputation.

If the domain was Houstoncardealer then sure, you could own it perfectly fine. But if the name is www.houstonporterdealer.com or www.houstoncheckeredflagdealer.com then you're violating their brand and blackmailing them.

This is a very clear cut matter. If you're using their advertised official name they will sue and win.

http://en.wikipedia.org/wiki/Cybersquatting