Newman

Glen D. Newman and Mary Lynn Newman borrowed money from First Security Bank of Bozeman to buy a grocery store. To secure repayment of the loan, they granted the Bank a security interest in the store’s assets and gave the Bank a mortgage on their home. The grocery business failed and the Newmans filed for protection under Chapter 7 of the Bankruptcy Act. They scheduled the Bank as a secured creditor, but asserted that the Bank’s security interest in their home was disputed. The Bank filed a proof of claim, but identified only the business assets as security for the claim. The home property was set aside to the Newmans as exempt under Montana’s homestead law, and the Newmans were granted their bankruptcy court discharge. The Bank reclaimed the business assets, sold them, and when a deficiency resulted it sought to enforce its mortgage lien against the Newmans’ home. The New-mans reopened their bankruptcy court proceedings and filed a declaratory relief action seeking to prevent the Bank from enforcing its lien.

The bankruptcy court granted summary judgment for the Bank. The district court affirmed. The Newmans appeal. They contend that because the Bank did not assert its lien…