ATF has the right to audit any dealer’s records to confirm they are correctly processing the paperwork and keeping the records required. I had a class 3 FFL some 20 years ago. While they can show up at your place of business unannounced for that audit, they always made an appointment. They are not free to wander the premises, they’d need probable cause and a warrant to root through your property. Bad record keeping could be a cause for that warrant. They will see a gun in the bound book and will ask you to provide it to them, confirm it matches the description on the form 4, and then ask for the next. They had a policy of auditing class 3 dealers on an annual basis. But this process, although more often then “regular” dealers, is the same for both.
When I sold my last title 2 and noted its disposal in my bound book I did not renew my Special Occupational Tax. Then ATF came for their annual audit they stated I had not renewed my SOT. I indicated I no longer had title 2s on the books and that was the end of that. I kept my “standard” FFL for a few more years and then closed that as well and shipped the bound book off to the FFL out of business address.
As an individual or non-licensee who happens to own a title 2 firearm, your rights are the same as any other gun owning individual. Probable cause is required to search your home.