If the seal were in the wrong direction, that could have been the grinding noise. Especially, if the fork bolts were loose. When you put the brakes on, the wheel was getting extra support and may have been held up straighter. This could have released the pressure on the seal and stopped the grinding noise.
Basically, the process of taking it apart, cleaning it all and putting it back together correctly in the right order and direction, and torquing the bolts, will solve the problems. A dealer would not notice that the spacer on the front axle was installed in the wrong direction on a used bike. Now, a loose bolt on the fork... You might invest $2 in some "blue locktite" for those fork and axle bolts so they don't come loose again. You can get it at Wal-Mart or any auto parts store. You put a drop or two on the threads right before you put the bolt in the hole and it locks the bolt in the threads until you put a wrench on it and break it loose. It can't break loose due to vibrations and shake itself out of the hole.
