What happens if the class 3 dealer goes out of business

M

Machineguntony

New member
Hi guy.

I have been shooting for about 25 years. At one time I had a collection that totaled about 200 guns. I eventually sold everything for personal reasons.

I'm back and I am looking to rebuild my collection. I now live in Texas, which allows machine guns and silencers (I hate the term 'suppressor'), so I've started rebuilding my collection.

I am currently waiting on a number of silencers, an MP5a3, an M16a1 (complete, not ar15), and m16a2.

My question is...what happens if the class III dealer closes his doors, goes out of business?

Technically, the NFA items haven't been transferred, so I don't own the items, the dealer owns them, and is waiting for BATFE approval to transfer them to me.

Granted, I've already paid the two different dealers, but if they go out of business, since they own the guns until the transfer, I am just another creditor of the dealer. I basically have to sue the dealer for return of my money of the items.

Does anyone know of a class III dealer that went out of business? What happened to the NFA items that were waiting for approval?

How about a bankruptcy? Does the trustee take the NFA items? A friend of mine is a bankruptcy lawyer, and he says that the bankruptcy trustee would just take the assets, and I become a general creditor, and I have to get in line behind other creditors. His reasoning is that I don't own the NFA items while I am waiting approval, but rather I have a contract with the dealer that he will transfer the guns/silencers once BATFE issues the stamp. Bankruptcy of the class III dealer would void the contract, and I become a general creditor, no different from any other creditor, who the dealer may owe money to, such as the bank, utility company, unsecured suppliers, etc.

I asked about perfecting a security interest with the NFA items, so that I don't have to share the NFA items with other creditors. He said that you can't do that because I don't currently own the NFA items, and I can't create a security interest in collateral that I do not own.
 
His reasoning is that I don't own the NFA items while I am waiting approval, but rather I have a contract with the dealer that he will transfer the guns/silencers once BATFE issues the stamp.
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You paid for these guns. You have a receipt for the thousands of dollars you paid for these guns. You own them, you simply can't posses them until your stamp comes in. When the stamp comes in the dealer must transfer them to you.
 
It has never happened to me nor to anyone close to me, but from reading the various posts, if the dealer go's out of business you are screwed. I've read where many people have lost their weapons or deposits when the gunsmith either left town or died, both the weapons and the money disappeared. Is it right, no, is it legal, don't think so, but it sure happens.
 
I am not a lawyer, but AFAIK the lawyer is correct. In spite of the money paid, no legal transfer has taken place. The same thing could happen with a car, furniture, or any other item you buy and have to wait for delivery for one reason or another. The situation where a gun (or car, etc.) is in the shop for repair is not much different if the shop goes out of business or burns down, even though there is no question of ownership in that case.

FWIW, I doubt that BATFE will take any position on such a matter; they will say they approve transfers and that the rest is a civil matter for state law and a state court.

Jim
 
I'm afraid I have to agree with you, James K. I must had a long discussion with my friend the lawyer. He says he's done some more research into the matter, and he says that according to how NFA transfers work, I do NOT actually own the guns yet, even though I have paid for them. I have what is the equivalent of a contract for the dealer to deliver the guns to me once BATFE issues the stamps. This technically means that if the dealer decides to go out of business, I am out of luck. Also if the dealer decides to just screw me and take off, I can't even file a police report because the dealer technically still owns the guns. My only remedy would be to sue in civil court, which would be worthless if the dealer went out of business.

Ahhhh...six more months of worrying.
 
Oh one final point...

The buying process for NFA stuff sucks. This wait is killing me, and it's only been two weeks.

But since I'm now about $80,000 invested in three machine guns, and planning about $100,000 more, I pray to Allah, Jesus, Zeus, and the Flying Spaghetti Monster that the NFA never gets repealed.
 
Well I am ringing a gong, lighting candles, and may sacrifice a chicken in hopes that the NFA goes out the window. Your investment be damned.

Not that I expect it to...
 
Something has to be done with NFA items when a dealer goes under. His choices are basically this:

  • He can pay a $200 tax and transfer the items from the business to himself
  • do a Form 3 and transfer them to another dealer, or
  • surrender the weapons to the authorities.
 
If the business simply closed its doors, did not file for bankruptcy and kept your money without transferring the item, you could sue the company and/or the owner for fraud etc.

However, when most businesses go under, the business and often its principal usually declare bankruptcy. In that case, I would assume that the Trustee in Bankruptcy would be given authority to liquidate the NFA items; if their are no enforceable liens on the NFA items, i.e. they were owned outright by the NFA dealer, I would expect that the trustee could liquidate the product and the buyers who paid money to the NFA dealer would be SOL, or would have to work it out with the Trustee. The bankruptcy trustee would still have to use an NFA dealer to liquidate the machine guns. I would think it would be treated the same way as folks who pay for things on lay-away and the department store goes bankrupt. I believe in lay-away cases, the customer ends up bearing the risk and losing his money.
 
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I see your risk in the opposite direction from Willie.
I think a ban on future transfers if not outright confiscation is on the statists' agenda.
Or how about indexing the transfer tax back to 1934? They always need more of our money. Look at tobacco. A known health hazard worthy of the war on drugs, but it is a cash cow to the governments and lawyers.
$200 was an 80% tax on a $250 Thompson.
A $64,000 tax bill on your resale would really cut into liquidity.

Sleep well.
 
The idea of a transfer tax on guns and ammo is now being revived. One proposal is $1000 on a handgun and $50 on a round of ammo.

Constitutional? The courts would eventually decide, but the NFA was passed on the idea of a prohibitory tax (the reason firearms enforcement was originally put under the IRS in the Treasury Department), so a court that struck down a state transfer tax on guns would also have to strike down the NFA, or at least the taxation part.

Jim
 
IANAL, but I disagree. Every NFA gun I've bought since I didn't renew my SOT has been accomplished by sending the funds directly to the seller and obtaining a receipt for the gun payment. Therefore I do have title to the weapon, not the receiving dealer. The sole purpose of the dealer is to enter the gun into his books, handle the BATF paperwork, and hold the gun until that paperwork is received back, then deliver the gun to me. At no point does the dealer have clear title to the weapon. If there had ever been a disagreement over who owned the gun, I could produce a receipt from the seller indicating the gun was sold to me. The dealer would not be able to produce anything. It might end up in court but I believe I would prevail.
 
Just thinking out loud here, but once the tax stamp came in, wouldn't it be difficult to transfer the gun to anyone else without the cooperation of the person whose name (or trust, or corp)is on the stamp? If he (the dealer) absconded with the weapon, what could he do with it? If a dealer had several stolen nfa items I feel he would be sought after by a couple of alphabet agencys. In a bankruptcy wouldn't the trustees be compelled to release the weapon to the buyer? I could see some issues, but unless he disapeared I would suspect you would get your items eventually.
 
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